Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12919 

17 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See the Nasdaq Stock Market LLC (‘‘Nasdaq’’) 

listing rules series 5200 (General Procedures and 

Prerequisites for Initial and Continued Listing on 

the Nasdaq Stock Market), 5600 (Corporate 

Governance Requirements), and 5800 (Failure to 

Meeting Listing Standards). Additionally, the chart 

provided in Item 8 below summarizes each Nasdaq 

Rule and each corresponding proposed Exchange 

Rule. 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSEARCA–2024–15 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NYSEARCA–2024–15. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSEARCA–2024–15 and should be 

submitted on or before March 12, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–03337 Filed 2–16–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99524; File No. SR– 

CboeBZX–2024–010] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Its 

Corporate Governance Requirements, 

as Provided Under Exchange Rule 

14.10 and Make Certain Other Changes 

to Its Listing Rules as Provided Under 

Exchange Rules 14.3, 14.6, 14.7, and 

14.12 

February 13, 2024. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

29, 2024, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) proposes to 

amend its Corporate Governance 

Requirements, as provided under 

Exchange Rule 14.10 and make certain 

other changes to its listing rules as 

provided under Exchange Rules 14.3, 

14.6, 14.7, and 14.12. The text of the 

proposed rule change is provided in 

Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (https://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

corporate governance requirements as 

provided under Exchange Rule 14.10 

and make certain other related changes 

to its listing rules as provided under 

Exchange Rules 14.3, 14.6, 14.7, and 

14.12. The proposed changes are 

substantively similar to the equivalent 

rule on another exchange.3 Specifically, 

the proposed changes will (1) modify 

the compensation-related listing rules to 

align with that of other exchanges; (2) 

modify the exemption to the Direct 

Registration Program (‘‘DRP’’) 

requirement as it pertains to foreign 

issuers; (3) require listed Companies to 

publicly disclose compensation or other 

payments by third parties to any 

nominee for director or sitting director 

in connection with their candidacy for 

or service on the Companies’ Board of 

Directors; (4) modify the listing 

requirements to change the definition of 

market value for purposes of the 

shareholder approval rules and 

eliminate the requirement for 

shareholder approval of issuances at a 

price less than book value but greater 

than market value; (5) modify and 

clarify the exemptions from certain 

corporate governance requirements; (6) 

modify the definition of a ‘‘Family 

Member’’ as defined in Rule 14.10; (7) 

modify the quorum requirement 

applicable to a non-U.S. company where 

such company’s home country law is in 

direct conflict with the Exchange’s 

quorum requirement; and (8) modify 

rule numbers and make other 

ministerial clarifying changes. As noted 

above, the proposed changes would 

result in Exchange Rules that are 

substantively similar to the existing 

rules of Nasdaq and are supported by 

prior Commission approval orders and 

immediately effective exchange 

proposals, as discussed in further detail 

below. 


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4See Nasdaq listing rule 5605. 5 ‘‘Executive Officer’’ means those officers 

covered in Rule 16a–1(f) under the Act. See 

Exchange Rule 14.10(c)(1)(A). 

6See Exchanger Rule 14.10(c)(1)(B). 

7See Exchange Rule 14.10(c)(4)(B). 

8See Securities Exchange Act Nos. 68013 

(October 9, 2012) 77 FR 62563 (October 15, 2012) 

(SR–NASDAQ–2012–109) (Notice of Filing of 

Proposed Rule Change To Modify the Listing Rules 

for Compensation Committees To Comply With 

Rule 10C–1 Under the Exchange Act and Make 

Other Related Changes) 68640 (January 11, 2013) 78 

FR 4554 (January 22, 2013) (Order Granting 

Accelerated Approval of Proposed Rule Change as 

Modified by Amendment Nos. 1 and 2 To Amend 

the Listing Rules for Compensation Committees To 

Comply With Rule 10C–1 Under the Act and Make 

Other Related Changes). 

9See Nasdaq Listing Rule 5605(d). 

10Supra note 10. 

11Smaller Reporting Companies may adopt either 

a formal written compensation committee charter or 

a board resolution that specifies the committee’s 

responsibilities and authority, except Smaller 

Reporting Companies are not required to specify the 

specific compensation responsibilities and 

authority set forth in proposed Exchange Rule 

14.10(d)(4)(D). For further discussion, see the 

section entitled ‘‘Smaller Reporting Companies’’ 

below. 

12See Exchange Rule 14.10(c)(3)(A). The 

proposed Rule is substantively identical to Nasdaq 

Rule 5605(d)(1). 

13The Exchange proposes to make a conforming 

change and technical and grammar corrections to its 

audit committee charter requirement to clarify that 

Companies’ annual review and reassessment of the 

audit committee charter should be prospective. This 

is consistent with the Exchange’s current 

interpretation of its audit committee charter 

requirement. By proposing this amendment, the 

Exchange seeks to minimize differences between 

the audit committee and compensation committee 

charter requirements and to eliminate potential 

questions as to whether the Exchange intended a 

discrepancy between these two requirements. 

14See Exchange Rule 14.10(c)(3)(A)(i). 

15See Nasdaq Listing Rule 5605(d)(1)(A). 

16See Exchange Rule 14.10(c)(4)(B)(i) and (ii). 

(1) Compensation-Related Listing Rules 

First, the Exchange proposes to 

amend Rule 14.10 to require a Company 

listed on the Exchange to have a 

compensation committee and to update 

its requirements for a compensation 

committee. In addition to being 

consistent with the rules of another 

exchange,4 The Exchange believes the 

proposed rule will be in accordance 

with Rule 10C–1 of the Act. 

(a) Requirement To Have a 

Compensation Committee 

The Exchange’s current listing rules 

require that compensation of the chief 

executive officer and all other Executive 

Officers 5 of a Company must be 

determined, or recommended to the 

board for determination, either by: (i) a 

compensation committee comprised 

solely of Independent Directors; 6 or as 

an alternative by (ii) Independent 

Directors constituting a majority of the 

board’s Independent Directors in a vote 

in which only Independent Directors 

participate (the ‘‘Alternative’’).7 Now, 

the Exchange proposes to eliminate the 

Alternative and instead require 

Exchange-listed Companies to have a 

standing compensation committee with 

the responsibility for determining, or 

recommending to the full board for 

determination, the compensation of the 

chief executive officer and all other 

Executive Officers of the Company. The 

Exchanges believes there are several 

benefits from a board having a standing 

committee dedicated solely to oversight 

of executive compensation. Specifically, 

directors on a standing compensation 

committee may develop expertise in a 

Company’s executive compensation 

program in the same way that directors 

on a standing audit committee develop 

expertise in a Company’s accounting 

and financial reporting processes. In 

addition, a formal committee structure 

may help promote accountability to 

stockholders for executive 

compensation decisions.8 Furthermore, 

no Company listed on the Exchange 

relies on the Alternative. Given this, the 

Exchange does not believe that 

eliminating the Alternative on the 

Exchange would impose any undue 

burden to Companies listed on the 

Exchange. 

The proposal would rename existing 

Rule 14.10(c)(4) ‘‘Compensation 

Committee Requirements’’ and would 

describe such requirements, many of 

which are included under existing Rule 

14.10(c)(4), as discussed further below. 

The proposal to require Exchange-listed 

Companies to have a standing 

compensation committee with the 

responsibility for determining, or 

recommending to the full board for 

determination, the compensation of the 

chief executive officer and all other 

Executive Officers of the Company, is 

substantively similar to existing rules of 

another Exchange 9 that were approved 

by the Commission.10

(b) Compensation Committee Charter 

The Exchange proposes to require 

each Company to certify that it has 

adopted a formal written compensation 

committee charter and that the 

compensation committee will review 

and reassess the adequacy of the formal 

written charter on an annual basis, as 

provided under proposed Rule 

14.10(c)(4)(A).11 This proposal is similar 

to the Exchange’s current requirement 

for Companies to certify as to the 

adoption of a formal written audit 

committee charter, except that the 

proposed requirement for annual review 

and reassessment of the adequacy of the 

compensation committee charter is 

written prospectively, rather than 

retrospectively.12 In other words, the 

proposed compensation committee 

charter requirement states that the 

compensation committee will review 

and reassess the adequacy of the charter 

on an annual basis, while the current 

audit committee charter requirement 

states that the audit committee has 

reviewed and reassessed the adequacy 

of the charter on an annual basis.13

The Exchange proposes that the 

compensation committee charter must 

specify: 

• the scope of the compensation 

committee’s responsibilities, and how it 

carries out those responsibilities, 

including structure, processes and 

membership requirements; 

• the compensation committee’s 

responsibility for determining, or 

recommending to the board for 

determination, the compensation of the 

chief executive officer and all other 

Executive Officers of the Company; 

• that the chief executive officer of 

the Company may not be present during 

voting or deliberations by the 

compensation committee on his or her 

compensation; and 

• the specific compensation 

committee responsibilities and authority 

set forth in proposed Exchange Rule 

14.10(c)(4)(D). 

The requirement for the charter to 

specify the scope of the compensation 

committee’s responsibilities, and how it 

carries out those responsibilities, 

including structure, processes and 

membership requirements, is copied 

from the Exchange’s similar listing rule 

relating to audit committee charters.14

Furthermore, this requirement is 

substantively similar to requirements on 

another exchange.15

The requirement for the charter to 

specify the compensation committee’s 

responsibility for determining, or 

recommending to the board for 

determination, the compensation of the 

chief executive officer and all other 

Executive Officers of the Company, is 

based upon the Exchange’s current 

compensation-related listing rules.16

These listing rules require that the 

compensation of a Company’s chief 

executive officer and all other Executive 

Officers must be determined by (i) a 

compensation committee comprised 

solely of Independent Directors or (ii) 

the Independent Directors constituting a 

majority of the board’s Independent 

Directors in a vote in which only 

Independent Directors participate. As 

discussed above, the Exchange proposes 

to eliminate the Alternative, and 

therefore, the compensation of a 

Company’s chief executive officer and 

all other Executive Officers must be 


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Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12921 

17See Exchange Rule 14.10(c)(4)(B)(i). 

18See Exchange Rule 14.10(c)(3(A)(iv), which 

requires that an audit committee charter set forth 

the specific audit committee responsibilities and 

authority set forth in Exchange Rule 14.10(c)(3)(C). 

Exchange Rule 14.10(c)(3)(C) states that an audit 

committee must have the specific responsibilities 

and authority necessary to comply with Rule 10A– 

3(b)(2), (3), (4) and (5) under the Exchange Act, with 

certain exemptions. Rule 10A–3(b)(2), (3), (4) and 

(5) under the Exchange Act concerns 

responsibilities relating to: (i) registered public 

accounting firms; (ii) complaints relating to 

accounting, internal accounting controls or auditing 

matters; (iii) authority to engage advisors; and (iv) 

funding as determined by the audit committee. 

19See Nasdaq Listing Rule 5605(d)(3). 

20See Nasdaq Listing Rule 5605(d)(2). 

21See Exchange Rule 14.10(c)(3)(B)(ii). 

22See Nasdaq Listing Rule 5605(d)(2)(B). 

23See Nasdaq Listing Rule 5605(d)(3). 

24See Nasdaq Rule 5605(d)(2)(A). 

determined, or recommended to the 

board for determination, by a 

compensation committee comprised of 

Independent Directors. Going forward, 

the Exchange proposes to implement 

this requirement by requiring 

Companies to include it in their formal 

written compensation committee 

charters. 

The requirement for the charter to 

specify that the chief executive officer of 

the Company may not be present during 

voting or deliberations by the 

compensation committee on his or her 

compensation is based upon the 

Exchange’s current compensationrelated listing rules.17 Going forward, 

the Exchange proposes to implement 

this requirement by requiring 

Companies to include it in their formal 

written compensation committee 

charters as applicable. 

Finally, the requirement for the 

charter to specify the specific 

compensation committee 

responsibilities and authority set forth 

in proposed Exchange Rule 

14.10(c)(4)(D) is modeled after the 

Exchange’s similar listing rule relating 

to audit committee charters.18

Moreover, it is substantively similar to 

rules of another exchange.19

(c) Compensation Committee Size 

Next, the Exchange proposes to 

impose a minimum size requirement of 

the compensation committee of at least 

two members under proposed Rule 

14.10(c)(4)(B). The proposal would 

move existing Rule 14.10(c)(4)(A) to 

paragraph (B) and incorporate the 

proposed compensation committee size 

requirement. Given the importance of 

compensation decisions to stockholders, 

the Exchange believes that it is 

appropriate to have more than one 

director responsible for these decisions. 

No Company currently listed on the 

Exchange has a compensation 

committee of fewer than two members. 

Given this, combined with the fact that 

another exchange 20 also requires a 

minimum compensation committee size 

of two members, the Exchange does not 

believe the proposal would cause undue 

hardship for Exchange-listed 

companies. 

(d) Exceptional and Limited 

Circumstances Exception 

The Exchange proposes to adopt Rule 

14.10(c)(4)(C), which will provide that 

notwithstanding proposed Rule 

14.10(c)(4)(B) (Compensation 

Committee Composition) if the 

compensation committee is comprised 

of at least three members, one director 

who does not meet the requirements of 

paragraph 14.10(c)(4)(B) and is not 

currently an Executive Officer or 

employee or a Family Member of an 

Executive Officer, may be appointed to 

the compensation committee if the 

board, under exceptional and limited 

circumstances, determines that such 

individual’s membership on the 

committee is required by the best 

interests of the Company and its 

Shareholders. A Company that relies on 

this exception must disclose either on or 

through the Company’s website or in the 

proxy statement for the next annual 

meeting subsequent to such 

determination (or, if the Company does 

not file a proxy, in its Form 10–K or 20– 

F), the nature of the relationship and the 

reasons for the determination. In 

addition, the Company must provide 

any disclosure required by Instruction 1 

to Item 407(a) of Regulation S–K 

regarding its reliance on this exception. 

A member appointed under this 

exception may not serve longer than two 

years. 

The Exchange’s current listing rules 

include similar exceptions for audit and 

nominations committees.21 The 

Exchange believes such an exception 

provides an important means to allow 

Companies flexibility as to board and 

committee membership and 

composition in unusual circumstances, 

which may be particularly important for 

smaller Companies. Moreover, the 

proposed rule is substantively similar to 

existing rules of another exchange.22

(e) Compensation Committee 

Responsibilities and Authority 

The Exchange proposes to keep the 

Compensation Committee 

Responsibilities and Authority provided 

under existing Rule 14.10(c)(4)(C) 

largely the same under proposed Rule 

14.10(c)(4)(D), but to make small 

modifications to restructure and 

organize the rule. Specifically, the 

Exchange proposes to add a paragraph 

following proposed Rule 

14.10(c)(4)(D)(iv) providing that for the 

purposes of this Rule, the compensation 

committee is not required to conduct an 

independence assessment for a 

compensation adviser that acts in a role 

limited to the following activities for 

which no disclosure is required under 

Item 407(e)(3)(iii) of Regulation S–K: (a) 

consulting on any broad-based plan that 

does not discriminate in scope, terms, or 

operation, in favor of Executive Officers 

or directors of the Company, and that is 

available generally to all salaried 

employees; and/or (b) providing 

information that either is not 

customized for a particular issuer or that 

is customized based on parameters that 

are not developed by the adviser, and 

about which the adviser does not 

provide advice. The proposed language 

is identical to that included in another 

exchanges rules.23

(f) Compensatory Fees 

Existing Rule 14.10(c)(4)(A)(i) 

provides that in addition to meeting the 

criteria listed under Rule 14.10(c)(1)(B), 

in evaluating the independence of a 

director to determine if such director is 

permitted to determine the 

compensation of Executive Officers as 

described in Rule 14.10(c)(4)(B), the 

board of directors of a Company shall 

consider the following factors: (a) the 

source of compensation of the director, 

including any consulting, advisory or 

other compensatory fee paid by the 

Company to such director; and (b) 

whether the director is affiliated with 

the Company, a subsidiary of the 

Company, or an affiliate of a subsidiary 

of the company. Now, the Exchange 

proposes to move existing Rule 

14.10(c)(4)(A)(i) to Rule 14.10(c)(4)(B) 

and to note within the paragraph the 

requirement that each Company must 

have and certify that it has and will 

continue to have a compensation 

committee of at least two members. The 

Exchange also proposes to make other 

non-substantive changes to Rule 

14.10(c)(4)(B) to add clarity and so that 

it is substantively identical to the 

equivalent Nasdaq rule.24

Additionally, the Exchange proposes 

to amend Interpretation and Policy .07 

to Rule 14.10 so that it is substantively 

identical to Nasdaq Listing IM–5605–6. 

Currently, Interpretation and Policy .07 

provides that independent director 

oversight of executive officer 

compensation helps assure that 

appropriate incentives are in place, 

consistent with the board’s 

responsibility to maximize shareholder 

value. The rule is intended to provide 


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25See 17 CFR 240.12b–2. 

26By six months from the Start Date, such a 

Company also must certify to the Exchange that: (i) 

it has complied with the requirement in Rule 

14.10(c)(4)(A) to have a compensation committee 

charter including the content specified in Rule 

14.110(c)(4)(A)(i)–(iv); and (ii) it has complied, or 

will within the applicable phase-in schedule 

comply, with the requirement in Rule 14.10(c)(4)(B) 

regarding compensation committee composition. 

flexibility for a Company to choose an 

appropriate board structure and to 

reduce resource burdens, while 

ensuring Independent Director control 

of compensation decisions. The 

Exchange proposes to modify 

Interpretation and Policy .07 to provide 

that independent director oversight of 

executive officer compensation helps 

assure that appropriate incentives are in 

place, consistent with the board’s 

responsibility to act in the best interests 

of the corporation. Compensation 

committees are required to have a 

minimum of two members and be 

comprised only of Independent 

Directors as defined under Rule 

14.10(c)(1)(B). 

In addition, proposed Rule 

14.10(c)(4)(B) includes an additional 

independence test for compensation 

committee members. When considering 

the sources of a director’s compensation 

for this purpose, the board should 

consider whether the director receives 

compensation from any person or entity 

that would impair the director’s ability 

to make independent judgments about 

the Company’s executive compensation. 

Similarly, when considering any 

affiliate relationship a director has with 

the Company, a subsidiary of the 

Company, or an affiliate of a subsidiary 

of the Company, in determining 

independence for purposes of 

compensation committee service, the 

board should consider whether the 

affiliate relationship places the director 

under the direct or indirect control of 

the Company or its senior management, 

or creates a direct relationship between 

the director and members of senior 

management, in each case of a nature 

that would impair the director’s ability 

to make independent judgments about 

the Company’s executive compensation. 

In that regard, while a board may 

conclude differently with respect to 

individual facts and circumstances, the 

Exchange does not believe that 

ownership of Company stock by itself, 

or possession of a controlling interest 

through ownership of Company stock by 

itself, precludes a board finding that it 

is appropriate for a director to serve on 

the compensation committee. In fact, it 

may be appropriate for certain affiliates, 

such as representatives of significant 

stockholders, to serve on compensation 

committees since their interests are 

likely aligned with those of other 

stockholders in seeking an appropriate 

executive compensation program. 

For purposes of the additional 

independence test for compensation 

committee members described in 

proposed Rule 14.10(c)(4)(B), any 

reference to the ‘‘Company’’ includes 

any parent or subsidiary of the 

Company. The term ‘‘parent or 

subsidiary’’ is intended to cover entities 

the Company controls and consolidates 

with the Company’s financial 

statements as filed with the Commission 

(but not if the Company reflects such 

entity solely as an investment in its 

financial statements). 

Proposed Interpretation and Policy 

.07 would set forth the compensation 

committee composition requirements 

for Smaller Reporting Companies. 

Specifically, a Smaller Reporting 

Company must have a compensation 

committee with a minimum of two 

members. Each compensation 

committee member must be an 

Independent Director as defined under 

Rule 14.10(c)(1)(B). In addition, each 

such Smaller Reporting Company must 

have a formal written compensation 

committee charter or board resolution 

that specifies the committee’s 

responsibilities and authority set forth 

in proposed Rule 14.10(c)(4)(A)(i)–(iii). 

However, in recognition of the fact that 

Smaller Reporting Companies may have 

fewer resources than larger Companies, 

Smaller Reporting Companies are not 

required to adhere to the additional 

compensation committee eligibility 

requirements in proposed Rule 

14.10(c)(4)(B), or to incorporate into 

their formal written compensation 

committee charter or board resolution 

the specific compensation committee 

responsibilities and authority set forth 

in proposed Rule 14.10(c)(4)(D). 

The Exchange also proposes to allow 

a Company that has ceased to be a 

Smaller Reporting Company to phase-in 

a fully-compliant compensation 

committee. Pursuant to Rule 12b–2 

under the Act, a Company tests its 

status as a Smaller Reporting Company 

on an annual basis at the end of its most 

recently completed second fiscal 

quarter.25 A Company which ceases to 

meet the requirements for Smaller 

Reporting Company status as of the 

Determination Date will cease to be a 

Smaller Reporting Company as of the 

beginning of the fiscal year following 

the Determination Date (the ‘‘Start 

Date’’). 

By six months from the Start Date 

(i.e., by six months after the beginning 

of its fiscal year), a Company that has 

ceased to be a Smaller Reporting 

Company must comply with the 

requirements of Rule 14.10(c)(4)(D) 

relating to certain compensation 

committee responsibilities and 

authority.26 In addition, such a 

Company may phase in its compliance 

with the additional compensation 

committee composition requirements of 

Rule 14.10(c)(4)(B) relating to the 

receipt of compensatory fees and 

affiliation as follows: (1) one member 

must satisfy the requirements by six 

months from the Start Date; (2) a 

majority of members must satisfy the 

requirements by nine months from the 

Start Date; and (3) all members must 

satisfy the requirements by one year 

from the Start Date. Since a Smaller 

Reporting Company is required to have 

a compensation committee comprised of 

at least two Independent Directors, a 

Company that has ceased to be a 

Smaller Reporting Company may not 

use the phase-in schedule for the 

minimum size requirement or the 

requirement that the committee consist 

only of Independent Directors as 

defined under 14.10(c)(1)(B). During the 

phase-in schedule, a Company that has 

ceased to be a Smaller Reporting 

Company must continue to comply with 

the requirement to have a compensation 

committee comprised of at least two 

Independent Directors as defined under 

the Exchange’s existing listing rules. 

(g) Smaller Reporting Companies 

Exemption 

The Exchange proposes to move 

existing Rule 14.10(e)(1)(F) to proposed 

Rule 14.10(c)(4)(F) with amendments to 

conform to Nasdaq Listing Rule 

5605(d)(5). Current Rule 14.10(e)(1)(F) 

provides that Smaller reporting 

companies, as defined in Rule 12b–2 

under the Act, are exempt from the 

Independent Director Oversight of 

Executive Officer Compensation 

requirements set forth in Rule 

14.10(c)(4), except that compensation of 

the chief executive officer and all other 

Executive Officers of the Company must 

be determined, or recommended to the 

Board for determination, either by: (i) 

Independent Directors constituting a 

majority of the Board’s Independent 

Directors in a vote in which only 

Independent Directors meeting the 

definition of Independent Director in 

Rule 14.10(c)(1)(B) participate; or (ii) a 

compensation committee comprised 

solely of Independent Directors meeting 

the definition of Independent Director 

in Rule 14.10(c)(1)(B). The rule further 

provides that the chief executive officer 

may not be present during voting or 

deliberations. 


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27The proposed Rule is substantively identical to 

Nasdaq Rule 5605(d)(1). 

28See Nasdaq Listing Rule 5605(d). 

29Supra notes 10 and 11. 

30 15 U.S.C. 78q–1. 

31See Exchange Rule 14.1(a)(14). 

32Exchange Act Rule 3b–4, 17 CFR 240.3b–4, 

defines the term ‘‘foreign issuer’’ as any issuer 

which is a foreign government, a national of any 

foreign country or a corporation or other 

organization incorporated or organized under the 

laws of any foreign country. 

33The proposed amendments to the Exchange’s 

DRP are substantively similar to changes made by 

Nasdaq. See Securities and Exchange Act Release 

No. 68238 (November 15, 2012) 77 FR 69911 

(November 21, 2012) (SR–NASDAQ–2012–128) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change To Expand the Exemption to 

the Direct Registration Program Requirement to All 

Foreign Issuers Rather Than Only Foreign Private 

Issuers). 34See Nasdaq Listing Rules 5210(c) and 5255(c). 

Now, the Exchange proposes to delete 

subparagraphs (i) and (ii) in existing 

Rule 14.10(e)(1)(F) and modify the 

proposed Rule to provide that a Smaller 

Reporting Company is not subject to the 

requirements of Rule 14.10(c)(4) except 

that a Smaller Reporting Company must 

have, and certify that it has and will 

continue to have, a compensation 

committee of at least two members, each 

of whom must be an Independent 

Director as defined under Rule 

14.10(c)(1)(B). Proposed Rule 

14.10(c)(4)(F) would also provide that a 

Smaller Reporting Company may rely 

on the exception in Rule 14.10(c)(4)(C) 

and the cure period in Rule 

14.10(c)(4)(E). In addition, a Smaller 

Reporting Company must certify that it 

has adopted a formal written 

compensation committee charter or 

board resolution that specifies the 

content set forth in Rule 

14.10(c)(4)(A)(i)–(iii). A Smaller 

Reporting Company does not need to 

include in its formal written 

compensation committee charter or 

board resolution the specific 

compensation committee 

responsibilities and authority set forth 

in Rule 14.10(c)(4)(D). As discussed 

above, the proposed amendments to 

Interpretation and Policy .07 to Rule 

14.10 would provide additional clarity 

to the requirements for Smaller 

Reporting Companies and would make 

the policy substantively similar to 

Nasdaq IM–5605–6. 

(h) Conforming Changes and Correction 

of Typographical Errors 

The Exchange proposes to capitalize 

the term ‘‘Independent Director’’ 

throughout Rule 14.10(c)(3)(B) (Audit 

Committee Composition) and the term 

‘‘Company’’ throughout Rule 14.10. 

The Exchange proposes to modify the 

Audit Committee Charter requirement 

provided in Rule 14.10(c)(3)(A) to 

require a prospective review of the 

adequacy of the formal written charter 

on an annual basis,27 similar to that 

proposed for the Compensation 

Committee Charter requirement under 

proposed Rule 14.10(c)(4)(A). Thus, 

proposed Rule 14.10(c)(3)(A) would 

provide that Each Company must certify 

that it has adopted a formal written 

audit committee charter and that the 

audit committee will review and 

reassess the adequacy of the formal 

written charter on an annual basis. 

Existing Rule 14.10(c)(1)(B) includes a 

paragraph that provides that in addition 

to the requirements contained in this 

Rule 14.10(c)(1)(B), directors of a 

Company, in determining compensation 

of Executive Officers as described in 

Rule 14.10(c)(4)(B) (relating to 

compensation of Executive Officers), are 

also subject to additional factors for 

determining independence under Rule 

14.10(c)(4). The Exchange proposes to 

delete this paragraph to conform to 

Nasdaq Rule 5605(a)(2)(G) and because 

the proposed compensation committee 

rules would already address this issue 

in proposed Rule14.10(c)(4)(B). 

The Exchange also proposes to correct 

certain typographical errors in Rule 

14.10(c)(1)(3) to maintain a clear 

Rulebook. 

As discussed above, the Exchange 

notes that all of the proposed changes to 

Rule 14.10(c) described above are 

substantively similar to existing rules of 

another Exchange 28 that were approved 

by the Commission.29

(2) Direct Registration Program 

Exchange Rules 14.3(b)(3) and 14.7(c) 

provide that all securities listed on the 

Exchange, with certain exceptions, must 

be eligible for a DRP operated by a 

clearing agency registered under Section 

17A of the Act.30 When this requirement 

was initially adopted, the Exchange 

recognized that the laws or regulations 

of certain foreign countries might make 

it impossible for companies 

incorporated in those countries to 

comply. Consequently, the rule permits 

a Foreign Private Issuer 31 to follow its 

home country practice in lieu of this 

requirement when prohibited from 

complying by a law or regulation in its 

home country. 

The Exchange now proposes to amend 

this exemption to extend its application 

to all ‘‘foreign issuers’’ as that term is 

used in Securities Exchange Act Rule 

3b–4 32 rather than only to Foreign 

Private Issuers.33 The Exchange believes 

this amendment is necessary because 

the same legal or regulatory 

impediments to DRP eligibility exist for 

a foreign issuer which is incorporated in 

a foreign jurisdiction but which does 

not qualify for Foreign Private Issuer 

status as is the case for a Foreign Private 

Issuer incorporated in the same 

jurisdiction which is currently eligible 

to utilize the existing exemption. Absent 

this extension of the scope of the 

exemption, the DRP eligibility 

requirement would render it impossible 

for a foreign issuer to list if it was not 

a Foreign Private Issuer but was 

incorporated in a foreign jurisdiction 

whose law or regulation made 

compliance with the DRP requirement 

impossible. As under the current 

exemption, a foreign issuer will have to 

submit to the Exchange a written 

statement from an independent counsel 

in the company’s home country 

certifying that a law or regulation in the 

home country prohibits compliance 

with the DRP requirement in order to 

utilize the exemption. 

The Exchange also proposes to amend 

the exemptions provided under Rule 

14.3(b)(3) to conform with those 

provided in existing Rule 14.7. 

Specifically, Exchange Rule 14.7(a) 

provides that except as indicated in 

Rule 14.7(c), all securities listed on the 

Exchange (except securities which are 

book-entry only) must be eligible for a 

DRP operated by a clearing agency 

registered under Section 17A of the Act. 

Existing Rule 14.3(b)(3) provides that all 

securities initially listing on the 

Exchange must be eligible for a DRP 

operated by a clearing agency registered 

under Section 17A of the Act. It also 

provides that this provision does not 

extend to: (i) additional classes of 

securities of Companies which already 

have securities listed on the Exchange; 

(ii) Companies which immediately prior 

to such listing had securities listed on 

another registered securities exchange 

in the U.S.; or, (iii) non-equity securities 

that are book-entry only. As these 

exemptions are not provided in existing 

Rule 14.7 or other exchange rules, the 

Exchange proposed to delete them from 

Rule 14.3(b)(3). The proposed rule 

changes are substantively similar to 

existing rules on another exchange.34

Exchange Rule 14.10(e)(1)(C) provides 

limited exemptions with respect to 

certain corporate governance and 

reporting requirements for Foreign 

Private Issuers and also provides that a 

Foreign Private Issuer may follow its 

home country practice in lieu of the 

DRP requirement set forth in Rules 

14.3(b)(3) and 14.7. As the proposed 

exemption to the DRP requirement 

expands beyond Foreign Private Issuers, 

the Exchange proposes to delete the 

reference to Rules 14.3(b)(3) and 14.7 


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35The proposed rule changes are substantively 

identical to Nasdaq Rule 5615(a)(3) and IM–5613– 

3. 

36 Id. 

37The Exchange notes that the proposal is 

substantively similar to other proposed rules 

approved by the Commission. See Securities and 

Exchange Act Nos. 77481 (March 30, 2016) 81 FR 

19678 (April 5, 2016) (SR–NASDAQ–2016–013) 

(Notice of Filing of Proposed Rule Change To 

Require Listed Companies to Publicly Disclose 

Compensation or Other Payments by Third Parties 

to Board of Director’s Members or Nominees); 

78223 (July 1, 2016) 81 FR 44400 (July 7, 2016) 

(Notice of Filing of Amendment No. 2 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 2, To 

Require Listed Companies to Publicly Disclose 

Compensation or Other Payments by Third Parties 

to Board of Director’s Members or Nominees). 

38See Nasdaq Listing Rule 5250(b)(3). 

39See Exchange Rules 14.6(b)(1), 14.10(e)(3)(B), 

14.10(c)(3)(B)(ii), and 14.10 (c)(5)(C). 

40See Exchange Rule 14.6(c). 

41The proposed rule is substantively identical to 

the preamble of Nasdaq Rule 5250(b)(3). 

42The proposed rule is substantively identical to 

Nasdaq Rule 5250(b)(3)(A). 

43The proposed rule is substantively identical to 

Nasdaq Rule 5250(b)(3)(B). 

44The proposed rule is substantively identical to 

Nasdaq Rule 5250(b)(3)(C). 

45The proposed rule is substantively identical to 

Nasdaq Rule 5250(b)(3)(D). 

from Rule 14.10(e)(1)(C) and 

Interpretation and Policy .12 of Rule 

14.10 to minimize confusion about the 

availability of such exemptions to 

foreign issuers that do not qualify for 

Foreign Private Issuer status.35

The Exchange also proposes to correct 

Rule inaccurate references in 

Interpretation and Policy .12 to Rule 

14.10 and Rule 14.10(e)(1)(C)(i). 

Specifically, the Exchange proposes to 

make non-substantive changes to 

modify incorrect references from Rule 

14.7 to Rule 14.10 and from Rule 

14.3(e)(4) to 14.6(d). Additionally, the 

Exchange proposes to correct a title 

reference in Exchange Rule 

14.10(e)(1)(C)(i) to correctly reflect the 

title of Rule 14.10(g) (Notification of 

Noncompliance). The Exchange also 

proposes to amend Interpretation and 

Policy .12 to Rule 14.10 to provide a 

more granular and accurate rule cite to 

the applicable audit committee 

requirement for Foreign Private Issuers 

provided under Rule 14.10(c)(3)(B)(i)(b). 

As discussed above, the Exchange also 

proposes to delete references to the 

Exchange’s DRP from Interpretation and 

Policy .12. In place of the reference to 

the DRP provided in Interpretation and 

Policy .12, the Exchange proposes to 

reiterate the requirement that a Foreign 

Private Issuer must comply with the 

voting rights requirement under Rule 

14.10(j). Further, as discussed below, 

the Exchange also proposes to add 

references to proposed Rule 14.6(b)(3) to 

proposed Interpretation and Policy .12. 

These proposed changes are also 

substantively similar to existing rules on 

another exchange.36

(3) Public Disclosure 

The Exchange proposes to add an 

additional obligation to make public 

disclosure under proposed Rule 

14.6(b)(3), which would require the 

disclosure of third party director and 

nominee compensation,37 and is 

substantively similar to existing rules of 

another exchange.38 Current Exchange 

Rules require listed companies to make 

public disclosure in several areas. For 

example, a listed company is required to 

publicly disclose material information 

that would reasonably be expected to 

affect the value of its securities or 

influence investors’ decisions as well as 

when non-independent directors serve 

on a committee that generally requires 

only independent directors, such as for 

a controlled company or under 

exceptional and limited 

circumstances.39 A listed company is 

also required to file required periodic 

reports with the Commission.40 A 

principal purpose of these disclosure 

requirements is to protect investors and 

ensure these investors have necessary 

information to make informed 

investment and voting decisions. 

As noted above, now the Exchange 

proposes to adopt Rule 14.6(b)(3) which 

would require the disclosure of third 

party director and nominee 

compensation. The preamble to 

proposed Rule 14.6(b)(3) would provide 

that Companies must disclose all 

agreements and arrangements in 

accordance with this rule by no later 

than the date on which the Company 

files or furnishes a proxy or information 

statement subject to Regulation 14A or 

14C under the Act in connection with 

the Company’s next shareholders’ 

meeting at which directors are elected 

(or, if they do not file proxy or 

information statements, no later than 

when the Company files its next Form 

10–K or Form 20–F).41

Proposed Rule 14.6(b)(3)(A) would 

require a Company to disclose either on 

or through the Company’s website or in 

the proxy or information statement for 

the next shareholders’ meeting at which 

directors are elected (or, if the Company 

does not file proxy or information 

statements, in its Form 10–K or 20–F), 

the material terms of all agreements and 

arrangements between any director or 

nominee for director, and any person or 

entity other than the Company (the 

‘‘Third Party’’), relating to compensation 

or other payment in connection with 

such person’s candidacy or service as a 

director of the Company. A Company 

need not disclose pursuant to this rule 

agreements and arrangements that: (i) 

relate only to reimbursement of 

expenses in connection with candidacy 

as a director; (ii) existed prior to the 

nominee’s candidacy (including as an 

employee of the other person or entity) 

and the nominee’s relationship with the 

Third Party has been publicly disclosed 

in a proxy or information statement or 

annual report (such as in the director or 

nominee’s biography); or (iii) have been 

disclosed under Item 5(b) of Schedule 

14A of the Act or Item 5.02(d)(2) of 

Form 8–K in the current fiscal year. 

Proposed Rule 14.6(b)(3)(A) would 

further provide that disclosure pursuant 

to Commission rule shall not relieve a 

Company of its annual obligation to 

make disclosure under proposed 

subparagraph (B).42

Proposed Rule 14.6(b)(3)(B) would 

provide that a Company must make the 

disclosure required in proposed 

subparagraph (A) at least annually until 

the earlier of the resignation of the 

director or one year following the 

termination of the agreement or 

arrangement.43 In recognition that a 

company, despite reasonable efforts, 

may not be able to identify all such 

agreements and arrangements, proposed 

Rule 14.6(b)(3)(C) would provide that if 

a Company discovers an agreement or 

arrangement that should have been 

disclosed pursuant to proposed 

subparagraph (A) but was not, the 

Company must promptly make the 

required disclosure by filing a Form 8– 

K or 6–K, where required by SEC rules, 

or by issuing a press release. Remedial 

disclosure under this proposed 

subparagraph, regardless of its timing, 

does not satisfy the annual disclosure 

requirements under proposed 

subparagraph (B).44

Proposed Rule 14.6(b)(3)(D) would 

provide that a Company shall not be 

considered deficient with respect to this 

paragraph for purposes of Rule 14.12 if 

the Company has undertaken reasonable 

efforts to identify all such agreements or 

arrangements, including asking each 

director or nominee in a manner 

designed to allow timely disclosure, and 

makes the disclosure required by 

proposed subparagraph (C) promptly 

upon discovery of the agreement or 

arrangement. In all other cases, the 

Company must submit a plan sufficient 

to satisfy Exchange staff that the 

Company has adopted processes and 

procedures designed to identify and 

disclose relevant agreements or 

arrangements.45 In cases where a 

company is considered deficient for 

purposes of Rule 14.12, the company 


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46Pursuant to Rule 14.12(f)(2)(A), a company is 

provided 45 days to submit a plan to regain 

compliance with Rules 14.10(f)(3) (Quorum), 

14.10(h) (Review of Related Party Transactions), 

14.10(i) (Shareholder Approval), 14.6(c)(3) (Auditor 

Registration), 14.7 (Direct Registration Program), 

14.10(d) (Code of Conduct), 14.10(e)(1)(D)(v) 

(Quorum of Limited Partnerships), 

14.10(e)(1)(D)(vii) (Related Party Transactions of 

Limited Partnerships), or 14.10(j) (Voting Rights). A 

company is generally provided 60 days to submit 

a plan to regain compliance with the requirement 

to timely file periodic reports contained in Rule 

14.12(f)(2)(F). 

47The proposed rule is substantively identical to 

Nasdaq Rule 5810(c)(2), except as for the reference 

to board disclosure rules which the Exchange is not 

proposing to adopte. 

48See Nasdaq Listing Rule 5810(c)(2)(A)(i) 

through (v). 

49See Nasdaq Listing Rule 5615(a)(3). 

50The Exchange notes that the proposal is 

substantively similar to other proposed rules 

approved by the Commission. See Securities and 

Exchange Act Nos. 77481 (March 30, 2016) 81 FR 

19678 (April 5, 2016) (SR–NASDAQ–2016–013) 

(Notice of Filing of Proposed Rule Change To 

Require Listed Companies to Publicly Disclose 

Compensation or Other Payments by Third Parties 

to Board of Director’s Members or Nominees); 

78223 (July 1, 2016) 81 FR 44400 (July 7, 2016) 

(Notice of Filing of Amendment No. 2 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 2, To 

Require Listed Companies to Publicly Disclose 

Compensation or Other Payments by Third Parties 

to Board of Director’s Members or Nominees). 

51 Id. 

52See Exchange Rule 14.10(i)(5)(C). 

53See Exchange Rule 11.23(a)(3). 

must provide a plan to regain 

compliance as provided under proposed 

Rule 14.12(f)(2)(A)(iv). Consistent with 

deficiencies from most other rules that 

allow a company to submit a plan to 

regain compliance,46 the Exchange 

proposes to allow companies deficient 

under the proposed rule 45 calendar 

days to submit a plan sufficient to 

satisfy Exchange staff that the company 

has adopted processes and procedures 

designed to identify and disclose 

relevant agreements and arrangements 

in the future.47 If the company does not 

do so, it would be issued a Staff 

Delisting Determination, which the 

company could appeal to a Hearings 

Panel pursuant to Rule 14.12. This 

proposal to adopt new Exchange Rule 

14.12(f)(2)(A)(iv) and to modify and 

renumber existing Rules 

14.12(f)(2)(A)(iv) and (v) to provide for 

the proposed Rule 14.12(f)(2)(A)(iv) is 

substantively similar to existing rules on 

another exchange.48

Finally, proposed Rule 14.6(b)(3)(E) 

would provide that a Foreign Private 

Issuer may follow its home country 

practice in lieu of the requirements of 

Rule 14.6(b)(3) by utilizing the process 

described in Rule 14.10(e)(1)(C). 

Consistent with other exemptions 

afforded certain types of companies, the 

Exchange is also proposing to amend 

Exchange Rule 14.10(e)(1)(C) to provide 

that a Foreign Private Issuer may follow 

home country practice in lieu of the 

requirements of proposed Rule 

14.6(b)(3). The proposal for this 

exemption is identical to an existing 

exemption provided on another 

exchange.49

The Exchange also proposes to adopt 

Interpretation and Policy .03 to Rule 

14.6 to add clarity and additional 

guidance to the requirements of 

proposed Rule 14.6(b)(3). Specifically, 

proposed Interpretation and Policy .03 

would provide that the terms 

‘‘compensation’’ and ‘‘other payment’’ 

as used in this proposed rule are 

intended to be construed broadly. 

Therefore, the terms would apply to 

agreements and arrangements that 

provide for non-cash compensation and 

other payment obligations, such as 

health insurance premiums or 

indemnification, made in connection 

with a person’s candidacy or service as 

a director. Further, at a minimum, the 

disclosure should identify the parties to 

and the material terms of the agreement 

or arrangement relating to 

compensation.50

Proposed Interpretation and Policy 

.03 to Rule 14.6 would also provide that 

Subject to exceptions provided in the 

rule, the disclosure must be made on or 

through the Company’s website or in the 

proxy or information statement for the 

next shareholders’ meeting at which 

directors are elected in order to provide 

shareholders with information and 

sufficient time to help them make 

meaningful voting decisions. A 

Company posting the requisite 

disclosure on or through its website 

must make it publicly available no later 

than the date on which the Company 

files a proxy or information statement in 

connection with such shareholders’ 

meeting (or, if they do not file proxy or 

information statements, no later than 

when the Company files its next Form 

10–K or Form 20–F). Disclosure made 

available on the Company’s website or 

through it by hyperlinking to another 

website, must be continuously 

accessible. If the website hosting the 

disclosure subsequently becomes 

inaccessible or that hyperlink 

inoperable, the company must promptly 

restore it or make other disclosure in 

accordance with this rule. Rule 

14.6(b)(3) does not separately require 

the initial disclosure of newly entered 

into agreements or arrangements, 

provided that disclosure is made 

pursuant to this rule for the next 

shareholders’ meeting at which 

directors are elected. In addition, for 

publicly disclosed agreements and 

arrangements that existed prior to the 

nominee’s candidacy and thus not 

required to be disclosed in accordance 

with proposed Rule 14.6(b)(3)(A)(ii) but 

where the director or nominee’s 

remuneration is thereafter materially 

increased specifically in connection 

with such person’s candidacy or service 

as a director of the Company, only the 

difference between the new and 

previous level of compensation or other 

payment obligation needs be disclosed. 

All references in this rule to proxy or 

information statements are to the 

definitive versions thereof.51

(4) Market Value Definition and 

Shareholder Approval 

Exchange Rule 14.10(i) sets forth the 

circumstances under which shareholder 

approval is required prior to an issuance 

of securities in connection with (1) the 

acquisition of the stock or assets of 

another company; (2) a change of 

control; (3) equity-based compensation 

of officers, directors, employees or 

consultants; and (4) private placements. 

Specifically, under current Rule 

14.10(i)(4), shareholder approval is 

required prior to the issuance of 

securities in connection with a 

transaction other than a public offering 

involving: 

(A) the sale, issuance or potential 

issuance by the Company of common 

stock (or securities convertible into or 

exercisable for common stock) at a price 

less than the greater of book or market 

value which together with sales by 

officers, directors or Substantial 

Shareholders 52 of the Company equals 

20% or more of common stock or 20% 

or more of the voting power outstanding 

before the issuance; or (B) the sale, 

issuance or potential issuance by the 

Company of common stock (or 

securities convertible into or exercisable 

common stock) equal to 20% or more of 

the common stock or 20% or more of 

the voting power outstanding before the 

issuance for less than the greater of book 

or market value of the stock. Exchange 

Rule 14.1(a)(19) defines ‘‘market value’’ 

as the closing bid price. Now, the 

Exchange proposes to make certain 

changes to Rule 14.10(i) as described 

below, and to modify the measure of 

market value for the purpose of Rule 

14.10(i)(4) from the closing bid price to 

the lower of: (i) BZX Official Closing 

Price 53 as reflected on Cboe.com or (ii) 

the average BZX Official Closing Price 

of the common stock as available on 

Cboe.com for the five trading days 

immediately preceding the signing of 

the binding agreement. 

The Exchange also proposes to amend 

the preamble and to Rule 14.10(i) and 


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54See Securities Exchange Act Nos. 82702 

(February 13, 2018) 83 FR 7269 (February 20, 2018) 

(SR–NASDAQ–2018–008) (Notice of Filing of 

Proposed Rule Change To Modify the Listing 

Requirements Contained in Listing Rule 5635(d) To 

Change the Definition of Market Value for Purposes 

of the Shareholder Approval Rules and Eliminate 

the Requirement for Shareholder Approval of 

Issuances at a Price Less Than Book Value but 

Greater Than Market Value) and 84287 (September 

26, 2018) 83 FR 49599 (October 2, 2018) (Notice of 

Filing of Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To Modify the 

Listing Requirements Contained in Listing Rule 

5635(d) To Change the Definition of Market Value 

for Purposes of the Shareholder Approval Rule and 

Eliminate the Requirement for Shareholder 

Approval of Issuances at a Price Less Than Book 

Value but Greater Than Market Value). See also 

Securities Exchange Act No. 88056 (January 28, 

2020) 85 FR 6003 (February 3, 2020) (SR– 

NASDAQ–2020–004) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

to Clarify the Term ‘‘Closing Price’’ in Rule 

5635(d)(1)(A) Relating to Shareholder Approval for 

Transactions Other Than Public Offerings). 

55 If an issue does not have a closing auction (e.g., 

there is insufficient interest to conduct a closing 

auction), the BZX Official Closing Price will be the 

Final Last Sale Eligible Trade. 

56See Nasdaq Listing Rule 5635(d). 

57 ‘‘Market value’’ is defined in Exchange Rule 

14.1(a)(19) and is applicable to the shareholder 

approval rules as well as other listing rules. 

58See Nasdaq Listing Rule 5635(d)(1)(A). 

59See Nasdaq Listing Rule 5635(d)(1)(B). 

60Transactions other than public offerings is also 

the proposed title to Rule 14.10(i)(4). 

the title of Rule 14.10(i)(4) to replace 

references to ‘‘private placements’’ with 

‘‘transactions other than public 

offerings’’, which conforms the language 

to that in existing Interpretation and 

Policy .18 to Rule 14.10. Private 

placements would continue to be 

considered ‘‘transactions other than 

public offerings’’ under the proposed 

rule change, and the proposed change 

does not change the essence of the 

current rule. 

The Exchange notes that the proposed 

changes to Exchange Rule 14.10(i) and 

Interpretation and Policy .18 to Rule 

14.10 are substantively similar to rules 

of another Exchange that were 

previously approved by the 

Commission.54

(a) Closing Price 

The BZX Official Closing Price refers 

to the price disseminated to the 

consolidated tape as the market center 

closing trade, which is derived from the 

closing auction on the Exchange if a 

closing auction occurs.55 The 

Exchange’s closing auction is designed 

to gather the maximum liquidity 

available for execution at the close of 

trading, and to maximize the number of 

shares executed at a single price at the 

close of the trading day. The closing 

auction promotes accurate closing 

prices by offering specialized orders 

available only during the closing 

auction and integrating those orders 

with regular orders submitted during 

the trading day that are still available at 

the close. Further, the Exchange 

believes the price of an executed trade 

is generally viewed as a more reliable 

indicator of value than a bid quotation. 

Given this combined with the fact that 

the proposal to use the official closing 

price rather than the closing bid price is 

similar to the rules of another exchange 

(except that it uses its own closing 

price) 56 the Exchange believes it is 

appropriate to use the BZX Official 

Closing Price rather than the closing bid 

price. 

In addition, because prices are 

displayed from numerous data sources 

on different websites, to provide 

transparency within the rule to the 

appropriate price and assure that 

companies and investors use the BZX 

Official Closing Price when pricing 

transactions, the Exchange proposes to 

codify within the proposed Rule 

14.10(i)(4)(A)(i) that Cboe.com is the 

appropriate source of the closing price 

information. 

(b) Five-Day Average Price 

The Exchange proposes to amend 

Rule 14.10(i)(4) to define a new concept 

as the ‘‘Minimum Price’’ and eliminate 

references to book value and eliminating 

the current definition of market value 57

from Rule 14.10(i)(4). Minimum Price 

would be defined under proposed Rule 

14.10(i)(4)(A)(i) as price that is the 

lower of: (a) the BZX Official Closing 

Price (as reflected on Cboe.com) for the 

five trading immediately preceding the 

signing of the binding agreement; or (b) 

the average BZX Official Closing Price 

of the common stock as reflected on 

(Cboe.com) for the five trading days 

immediately preceding the signing of 

the binding agreement. This means that 

the issuance would not require an 

approval by company’s shareholders, so 

long as it is at a price that is greater than 

the lower of those measures. 

The Exchange believes that while 

investors and companies sometimes 

prefer to use an average when pricing 

transactions, there are potential negative 

consequences to using a five-day 

average as the sole measure of whether 

shareholder approval is required. For 

example, in a declining market, the fiveday average closing price will be above 

the current market price, which could 

make it difficult for companies to close 

transactions because investors could 

buy shares at a lower price in the 

market. Conversely, using a five-day 

average in a rising market the five-day 

average closing price will appear to be 

at a discount to the closing current 

market price. Further, if material news 

is announced during the five-day 

period, the average price could be a 

worse reflection of market value than 

the closing price after the news is 

disclosed. The Exchange believes that 

these risks of using the five-day average 

closing price are already accepted by the 

market, as evidenced by the use of an 

average price in transactions that do not 

require shareholder approval, such as 

those transactions where less than 20% 

of the outstanding shares are being 

issued. Nonetheless, the Exchange 

believes the proposal balances this risk 

because an issuance would not require 

shareholder approval as long as the 

issuance occurs at a price greater than 

the lower of the two proposed measures. 

To improve the readability of the rule, 

the Exchange proposes to eliminate 

references to book value and current 

definition of market value from Rule 

14.10(i)(4) and to instead reference the 

defined term Minimum Price. The 

Exchange notes that the proposal is 

substantively similar to existing rules of 

another exchange.58

(c) Book Value 

The Exchange proposes to eliminate 

the requirement for shareholder 

approval of issuances at a price less 

than book value but greater than market 

value. Book value is an accounting 

measure and its calculation is based on 

the historic cost of assets, not their 

current value. As such the Exchange 

believes that book value is not an 

appropriate measure of whether a 

transaction is dilutive or should 

otherwise require shareholder approval. 

Further, the proposal is substantively 

similar to existing rules of another 

exchange.59

(d) Other Changes to the Shareholder 

Approval Requirement 

The Exchange proposes to revise 

Exchange Rule 14.10(i)(4) to provide 

that shareholder approval is required 

prior to a 20% issuance at a price that 

is less than the Minimum Price. To 

improve the readability of Exchange 

Rule 14.10(i)(4), the Exchange proposes 

to define ‘‘20% Issuance’’ as ‘‘a 

transaction, other than a public 

offering 60 as defined in Rule 14.10, 

Interpretation and Policy .18, involving 

the sale, issuance or potential issuance 

by the Company of common stock (or 

securities convertible into or exercisable 

for common stock), which alone or 

together with sales by officers, directors 

or Substantial Shareholders of the 

Company, equals 20% or more of the 

common stock or 20% or more of the 


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61Supra notes 55 and 56. 

62See Nasdaq Listing Rules 5615(a), IM–5615–4, 

and IM–5620; NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule 

5.3–E. 

63Rule 14.10 Interpretation and Policy .10 defines 

as issuers ‘‘that are organized as trusts or other 

unincorporated associations that do not have a 

board of directors or persons acting in a similar 

capacity and whose activities are limited to 

passively owning or holding (as well as 

administering and distributing amounts in respect 

of) securities, rights, collateral or other assets on 

behalf of or for the benefit of the holders of the 

listed securities.’’ 

64Exchange Rule 14.10(e)(1)(A)(i)(b) includes 

Portfolio Depositary Receipts as an example of a 

passive issuer. 

65 15 U.S.C. 80a. 

66 17 CFR 240.10A–3. 

67Rule 14.10 Interpretation and Policy .15 also 

exempts securities listed pursuant to Exchange Rule 

14.11(h) (unless the listed security is a common 

stock or voting preferred stock equivalent). 

68See Nasdaq Listing Rule 5615(a)(6) and Arca 

Rule 5.3–E. See also Securities Exchange Act No. 

86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) 

(SR–NASDAQ–2019–039) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend Nasdaq Rule 5615 To Allow Additional 

Issuers Who List Only Specific Securities To Be 

Able To Avail Themselves of Certain Exemptions 

Under Corporate Governance Requirements and To 

Amend Nasdaq Rule IM–5620 To Exclude 

Additional Categories of Issuers Listing Only 

Specific Securities From the Annual Shareholder 

Meeting Requirement); Securities Exchange Act No. 

83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 

(SR–NYSEArca–2018–31) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend NYSE Arca Rule 5.3–E To Exclude 

Certain Categories of Issuers From the Exchange’s 

Annual Meeting Requirement). 

69The Exchange is proposing to expand the list 

of products that are exempt from the annual 

meeting requirements of Exchange Rule 14.10(f). 

The proposed list of products consists of: 

Commodity Futures Trust Shares; Commodity 

Index Trust Shares; Commodity-Based Trust Shares; 

Commodity-Linked Securities; Currency Trust 

Shares; Equity Gold Shares; Equity Index-Linked 

Continued 

voting power outstanding before the 

issuance.’’ This definition combines the 

situations described in existing Rule 

14.10(i)(4)(A) and (B) into one provision 

and makes no substantive change to the 

threshold for quantity or voting power 

of shares being sold that would give rise 

to the need for shareholder approval, 

although as described above, the 

applicable pricing test will change. 

Finally, the Exchange proposes to 

amend Rule 14.10 Interpretations and 

Policies .18 and .19, which describe 

how the Exchange applies the 

shareholder approval requirements, to 

conform references to book and market 

value with the new definition of 

Minimum Price, as described above, and 

to utilize the newly defined term 20% 

Issuance. The Exchange also proposes to 

correct an incorrect reference to the 

Exchange’s rules relating to a 

Company’s failure to meeting listing 

standards from Rule 14.9 to 14.12. 

As noted above, the proposed changes 

to Exchange Rule 14.10(i) and 

Interpretation and Policy .18 to Rule 

14.10 are substantively similar to rules 

of another Exchange that were 

previously approved by the 

Commission.61

(5) Exemptions to Certain Corporate 

Governance Requirements 

The Exchange proposes to amend and 

expand the exemptions available to 

issuers of certain securities from some 

of the Exchange’s corporate governance 

requirements and to define certain of 

those securities as ‘‘Derivative 

Securities’’. The Exchange also proposes 

to amend Exchange Rule 14.10 

Interpretation and Policy .15 to modify 

the exemptions from the annual meeting 

requirements. The Exchange notes that 

the proposed changes would result in 

rules that are substantively similar to 

the existing rules of other exchanges.62

Exchange Rule 14.10(e) currently 

provides exemptions to issuers of 

certain securities listed on the Exchange 

from portions of the corporate 

governance requirements. Specifically, 

Exchange Rule 14.10(e)(1)(A) provides 

exemptions for asset-backed issuers 63

and other passive issuers 64 from the 

provisions of Exchange Rule 14.10(c)(2) 

(Independent Directors), Exchange Rule 

14.10(c)(3) (Audit Committee 

Requirements), Exchange Rule 

14.10(c)(4) (Independent Director 

Oversight of Executive Officer 

Compensation), Exchange Rule 

14.10(c)(5) (Independent Director 

Oversight of Director Nominations), 

Exchange Rule 14.10(d) (Code of 

Conduct), and Exchange Rule 

14.10(e)(3) (Controlled Company 

Exemption). Exchange Rule 

14.10(e)(1)(E) provides exemptions for 

management investment companies 

registered under the Investment 

Company Act of 1940 65 from the 

provisions of Exchange Rule 14.10(c)(2) 

(Independent Directors), Exchange Rule 

14.10(c)(4) (Independent Director 

Oversight of Executive Officer 

Compensation), Exchange Rule 

14.10(c)(5) (Independent Director 

Oversight of Director Nominations), and 

Exchange Rule 14.10(d) (Code of 

Conduct). In addition, under Exchange 

Rule 14.10(e)(1)(E), management 

investment companies are exempt from 

Exchange Rule 14.10(c)(3) (Audit 

Committee Requirements), except for 

the provisions of Rule 10A–3 under the 

Exchange Act.66

Currently, products that can rely on 

the exemptions within Exchange Rule 

14.10(e)(1)(E) are Index Fund Shares 

(Exchange Rule 14.11(c)), Managed 

Fund Shares (Exchange Rule 14.11(i)), 

Managed Portfolio Shares (Exchange 

Rule 14.11(k)), ETF Shares (Exchange 

Rule 14.11(l)), and Tracking Fund 

Shares (Exchange Rule 14.11(m)). 

Additionally, Rule 14.10 Interpretation 

and Policy .15 provides exemptions to 

issuers of certain securities listed 

pursuant to the requirements of 

Exchange Rule 14.10(f) (Meetings of 

Shareholders). Currently, Portfolio 

Depositary Receipts (Exchange Rule 

14.11(b)), Index Fund Shares (Exchange 

Rule 14.11(c)), and Trust Issued 

Receipts (Exchange Rule 14.11(f)) are 

exempt from the annual meeting 

requirements.67

The Exchange now proposes to add a 

definition of ‘‘Derivative Securities’’ to 

Exchange Rule 14.10(e)(1)(F)(ii) (the 

‘‘Proposed Definition’’), as discussed in 

the ‘‘Definition of Derivative Securities’’ 

section below. Further, the Exchange 

proposes to adopt Rule 14.10(e)(1)(F)(i), 

which would provide that issuers whose 

only securities listed on the Exchange 

are non-voting preferred securities, debt 

securities or Derivative Securities, are 

exempt from the requirements relating 

to Independent Directors (as set forth in 

Rule 14.10(c)(2)), Independent Director 

Oversight of Executive Officer 

Compensation (as set forth in Rule 

14.10(c)(4)), Director Nominations (as 

set forth in Rule 14.10(c)(5)), Code of 

Conduct (as set forth in Rule 14.10(d)), 

and Meetings of Shareholders (as set 

forth in Rule 14.10(f)). In addition, these 

issuers are exempt from the 

requirements relating to Audit 

Committees (as set forth in Rule 

14.10(c)(3)), except for the applicable 

requirements of SEC Rule 10A–3. 

Notwithstanding, if the issuer also lists 

its common stock or voting preferred 

stock, or their equivalent on the 

Exchange it will be subject to all the 

requirements of Exchange Rule 14.10. 

Rule 14.10(e)(1)(F)(i) will continue to 

require such companies to comply with 

the requirements of Exchange Rule 

14.10(g), pursuant to which an issuer 

will provide the Exchange with prompt 

notification after an executive officer of 

the company becomes aware of any 

noncompliance by the company with 

the requirements of Exchange Rule 

14.10. The Exchange notes that 

proposed Rule 14.10(e)(1)(F)(i) and (ii) 

are substantively similar to rules on 

other exchanges.68

The Exchange also proposes to amend 

Exchange Rule 14.10 Interpretation and 

Policy .15 to amend the annual meeting 

requirements of Exchange Rule 14.10(f) 

to clarify that issuers of only non-voting 

preferred securities, debt securities or 

Derivative Securities 69 are not subject 


ddrumheller on DSK120RN23PROD with NOTICES1
12928 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 

Securities; Exchange-Traded Fund Shares; Fixed 

Income Index-Linked Securities; Futures-Linked 

Securities; Index Fund Shares; Index-Linked 

Exchangeable Notes; Managed Fund Shares; 

Managed Portfolio Shares; Managed Trust 

Securities; Multifactor Index-Linked Securities; 

Partnership Units; Portfolio Depository Receipts; 

SEEDS; Tracking Fund Shares; Trust Certificates; 

and Trust Issued Receipts. Portfolio Depositary 

Receipts, Index Fund Shares and Trust Issued 

Receipts are currently excluded from the annual 

meeting requirement Exchange Rule 14.10(f). 

70See Nasdaq Listing Rule IM–5620. See also 

Securities Exchange Act No. 86072 (June 10, 2019) 

84 FR 27816 (June 14, 2019) (SR–NASDAQ–2019– 

039) (Notice of Filing and Immediate Effectiveness 

of Proposed Rule Change To Amend Nasdaq Rule 

5615 To Allow Additional Issuers Who List Only 

Specific Securities To Be Able To Avail Themselves 

of Certain Exemptions Under Corporate Governance 

Requirements and To Amend Nasdaq Rule IM–5620 

To Exclude Additional Categories of Issuers Listing 

Only Specific Securities From the Annual 

Shareholder Meeting Requirement). 

71See Nasdaq Listing Rules 5615(a), IM–5615–4, 

and IM–5620; NYSE Arca Rule 5.3–E. 

72See Exchange Rule 14.10(e)(1)(E) and 

Interpretation and Policy .15 to Rule 14.10 for the 

exemptions for Index Fund Shares and 

14.10(e)(1)(A) and Interpretation and Policy .15 to 

Rule 14.10 for the exemptions regarding Portfolio 

Depositary Receipts. 

73See Securities Exchange Act No. 86072 (June 

10, 2019) 84 FR 27816 (June 14, 2019) (SR– 

NASDAQ–2019–039) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend Nasdaq Rule 5615 To Allow Additional 

Issuers Who List Only Specific Securities To Be 

Able To Avail Themselves of Certain Exemptions 

Under Corporate Governance Requirements and To 

Amend Nasdaq Rule IM–5620 To Exclude 

Additional Categories of Issuers Listing Only 

Specific Securities From the Annual Shareholder 

Meeting Requirement). 

to the rule. The Exchange believes that 

the proposed amendment is appropriate 

because the holders of non-voting 

preferred securities, debt securities or 

Derivative Securities do not have voting 

rights with respect to the election of 

directors except in very limited 

circumstances as required by federal or 

state law or their governing documents. 

The rule will continue to state that if the 

Company also lists common stock or 

voting preferred stock, or their 

equivalent, on the Exchange, the 

Company will be subject to the annual 

meeting requirements of Exchange Rule 

14.10(f). The proposed change is 

substantively identical to an existing 

rule on another exchange.70

Definition of ‘‘Derivative Security’’ 

The proposed definition of Derivative 

Security will include: Commodity 

Futures Trust Shares; Commodity Index 

Trust Shares; Commodity-Based Trust 

Shares; Commodity-Linked Securities; 

Currency Trust Shares; Equity Gold 

Shares; Equity Index-Linked Securities; 

ETF Shares; Fixed Income Index-Linked 

Securities; Futures-Linked Securities; 

Index Fund Shares; Index-Linked 

Exchangeable Notes; Managed Fund 

Shares; Managed Portfolio Shares; 

Managed Trust Securities; Multifactor 

Index-Linked Securities; Partnership 

Units; Portfolio Depository Receipts; 

Selected Equity-linked Debt Securities 

(‘‘SEEDS’’); Tracking Fund Shares; Trust 

Certificates; and Trust Issued Receipts. 

Each of these types of securities is 

similarly exempt from the corporate 

governance requirements as proposed 

herein on another exchange,71 as 

summarized in the table below: 

Product type Exchange rule Nasdaq rule NYSE arca rule 

Commodity Futures Trust Shares ................................... 14.11(e)(7) ......................... Rule 5711(g) ...................... 8.204–E. 

Commodity Index Trust Shares ....................................... 14.11(e)(6) ......................... Rule 5711(f) ....................... 8.203–E. 

Commodity-Based Trust Shares ..................................... 14.11(e)(4) ......................... Rule 5711(d) ...................... 8.201–E. 

Commodity-Linked Securities .......................................... 14.11(d) ............................. Rule 5710(k)(ii) .................. 5.2–E(j)(6)(B)(II). 

Currency Trust Shares .................................................... 14.11(e)(5) ......................... Rule 5711(e) ...................... 8.202–E. 

Equity Gold Shares ......................................................... 14.11(e)(2) ......................... Rule 5711(b) ...................... 5.2–E(j)(5). 

Equity Index-Linked Securities ........................................ 14.11(d) ............................. Rule 5710(k)(i) ................... 5.2E(j)(6)(B)(I). 

Exchange-Traded Fund Shares ...................................... 14.11(l) .............................. Rule 5704 .......................... 5.2–E(j)(8). 

Fixed Income Index-Linked Securities ............................ 14.11(d) ............................. 5710(k)(iii) .......................... 5.2E(j)(6)(B)(IV). 

Futures-Linked Securities ................................................ 14.11(d) ............................. 5710(k)(iv) ......................... 5.2E(j)(6)(B)(V). 

Index Fund Shares * ........................................................ 14.11(c) ............................. Rule 5750 .......................... 5.2E(j)(3). 

Index-Linked Exchangeable Notes .................................. 14.11(e)(1) ......................... Rule 5711(a) ...................... 5.2–E(j)(4). 

Managed Fund Shares .................................................... 14.11(i) .............................. Rule 5735 .......................... 8.600–E. 

Managed Portfolio Shares ............................................... 14.11(k) ............................. Rule 5745 .......................... 8.900–E. 

Managed Trust Securities ............................................... 14.11(e)(10) ....................... Rule 5711(j) ....................... 8.700–E. 

Multifactor Index-Linked Securities ................................. 14.11(d) ............................. 5710(k)(v) .......................... 5.2E(j)(6)(B)(VI). 

Partnership Units ............................................................. 14.11(e)(8) ......................... Rule 5711(h) ...................... 8.300–E. 

Portfolio Depository Receipts .......................................... 14.11(b) ............................. Rule 5705 .......................... 8.100–E. 

SEEDS ............................................................................. 14.11(e)(12) ....................... Rule 5715 .......................... 5.2–E(j)(2). 

Tracking Fund Shares ** .................................................. 14.11(m) ............................ Rule 5750 .......................... 8.601–E. 

Trust Certificates ............................................................. 14.11(e)(3) ......................... Rule 5711(c) ...................... 5.2–E(j)(7). 

Trust Issued Receipts ...................................................... 14.11(f) .............................. Rule 5720 .......................... 8.200–E. 

* Index Fund Shares are generally equivalent to Investment Company Units listed pursuant to NYSE Arca Rule 5.2–E(j)(3). 

** Tracking Fund Shares are generally equivalent to Active Proxy Portfolio Shares listed pursuant to NYSE Arca Rule 8.601–E and Proxy Portfolio Shares listed pursuant to Nasdaq Rule 5750. 

Portfolio Depositary Receipts & Index 

Fund Shares 

The Exchange believes it is 

appropriate that Portfolio Depositary 

Receipts and Index Fund Shares are 

included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because 

these securities are currently exempt 

from the provisions Exchange Rule 

14.10(c)(2) (Independent Directors), 

Exchange Rule 14.10(c)(4) (Independent 

Director Oversight of Executive Officer 

Compensation), Exchange Rule 

14.10(c)(5) (Independent Director 

Oversight of Director Nominations), 

Exchange Rule 14.10(d) (Code of 

Conduct), and Exchange Rule 14.10(f) 

(Meetings of Shareholders).72 Further, 

both Portfolio Depositary Receipts and 

Index Fund Shares are exempt from the 

same corporate governance 

requirements on another exchange.73

Equity Index-Linked Securities, 

Commodity-Linked Securities, Fixed 

Income Index-Linked Securities, 

Futures-Linked Securities, Multifactor 

Index-Linked Securities, Index-Linked 

Exchangeable Notes, and SEEDs 

The Exchange also believes it is 

appropriate that Equity Index-Linked 

Securities, Commodity-Linked 

Securities, Fixed Income Index-Linked 

Securities, Futures-Linked Securities, 

Multifactor Index-Linked Securities, 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12929 

74Exchange Rule 14.11(h)(1)(E), with which 

securities listed pursuant to Rule 14.11(d), 14.11(f), 

and 14.11(h) must comply, states, in part, the 

issuers of these securities must be ‘‘listed on the 

Exchange, the NYSE or NASDAQ, or must be an 

affiliate of a Company listed on the Exchange, the 

NYSE or NASDAQ’’. 

75Like traditional debt securities, these securities 

are debt of the issuer and have a specific date of 

maturity. 

76Nasdaq Listing Rule 5615(a)(6) and Arca Rule 

5.3–E. See also Securities Exchange Act No. 86072 

(June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– 

NASDAQ–2019–039) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend Nasdaq Rule 5615 To Allow Additional 

Issuers Who List Only Specific Securities To Be 

Able To Avail Themselves of Certain Exemptions 

Under Corporate Governance Requirements and To 

Amend Nasdaq Rule IM–5620 To Exclude 

Additional Categories of Issuers Listing Only 

Specific Securities From the Annual Shareholder 

Meeting Requirement); Securities Exchange Act No. 

83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 

(SR–NYSEArca–2018–31) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend NYSE Arca Rule 5.3–E To Exclude 

Certain Categories of Issuers From the Exchange’s 

Annual Meeting Requirement). 

77Exchange Rule 14.11(e)(2)(A) states that ‘‘while 

Equity Gold Shares are not technically Index Fund 

Shares and thus not are not covered by 14.11(c), all 

other rules that reference ‘‘Index Fund Shares’’ 

shall also apply to Equity Gold Shares.’’ 

78Nasdaq Listing Rule 5615(a)(6) and Arca Rule 

5.3–E. See also Securities Exchange Act No. 86072 

(June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– 

NASDAQ–2019–039) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend Nasdaq Rule 5615 To Allow Additional 

Issuers Who List Only Specific Securities To Be 

Able To Avail Themselves of Certain Exemptions 

Under Corporate Governance Requirements and To 

Amend Nasdaq Rule IM–5620 To Exclude 

Additional Categories of Issuers Listing Only 

Specific Securities From the Annual Shareholder 

Meeting Requirement); Securities Exchange Act No. 

83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 

(SR–NYSEArca–2018–31) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend NYSE Arca Rule 5.3–E To Exclude 

Certain Categories of Issuers From the Exchange’s 

Annual Meeting Requirement). 

79 Id. 

80 Id. 

Index-Linked Exchangeable Notes and 

SEEDS are included in the Proposed 

Definition and, therefore, entitled to the 

exemptions proposed herein because 

each are separate forms of unsecured 

debt of an issuer that is already subject 

to the corporate governance and annual 

meeting requirements of a national 

securities exchange and will continue to 

be required under such rules.74

If the issuer is listed on the Exchange, 

it is already subject to the requirements 

of Exchange Rule 14.10. If the issuer is 

listed on Nasdaq or NYSE Arca, it is 

already subject to corporate governance 

standards that are substantively similar 

to the Exchange’s corporate governance 

rules as proposed herein. In addition, 

the Exchange believes that it is 

appropriate to exempt these securities 

from the annual meeting requirements 

of Exchange Rule 14.10(f) because the 

holders of these securities have 

economic interests and other limited 

rights that do not include voting rights. 

The Exchange notes that these issuers 

may still be required to hold 

shareholder meetings, including special 

meetings, as required by federal or state 

law or their governing documents. 

In addition, while unlike traditional 

debt securities, these securities derive 

their value from the performance of an 

underlying index or reference asset, 

they retain many of the same 

characteristics as traditional debt 

securities 75 and, therefore, the 

Exchange believes it is consistent to 

treat them accordingly with regard to 

the corporate governance and annual 

meeting requirements. 

The Exchange notes that these 

securities are already similarly 

exempted from the same corporate 

governance requirements on other 

exchanges.76

Equity Gold Shares 

Similarly, the Exchange believes it is 

appropriate that Equity Gold Shares are 

included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because 

like such classes of derivative securities, 

Equity Gold Shares are passive 

investment vehicles that hold a 

beneficial interest in a specified 

commodity trust. In addition, Equity 

Gold Shares are treated in a similar 

fashion to Index Fund Shares under the 

existing Exchange rules.77 Therefore, 

the Exchange believes it is appropriate 

that Equity Gold Shares are included in 

the Proposed Definition and, therefore, 

entitled to the exemptions proposed 

herein as Index Fund Shares are already 

exempt from certain provisions of 

Exchange Rule 14.10. The Exchange 

notes that Equity Gold Shares are 

already similarly exempted from the 

same corporate governance 

requirements on other exchanges.78

Trust Certificates 

The Exchange believes it is 

appropriate that Trust Certificates are 

included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because 

these securities represent an interest in 

a passive investment vehicle that are 

issued by entities created solely to issue 

securities and invest in the underlying 

index or reference assets. The trust does 

not have a board of directors and the 

holders of Trust Certificates have no 

voting rights, unless required under 

state law, with regard to corporate 

matters, including election of trustees. 

Therefore, the Exchange believes that 

Trust Certificates should be included in 

the Proposed Definition and should not 

be subject to the annual meeting 

requirements of Exchange Rule 14.10(f). 

The Exchange notes that these issuers 

may still be required to hold 

shareholder meetings, including special 

meetings, as required by federal or state 

law or their governing documents. The 

Exchange further notes that Trust 

Certificates are already similarly 

exempted from the same corporate 

governance requirements on other 

exchanges.79

Commodity-Based Trust Shares, 

Currency Trust Shares, Commodity 

Index Trust Shares, and Commodity 

Futures Trust Shares 

The Exchange also believes it is 

appropriate that Commodity-Based 

Trust Shares, Currency Trust Shares, 

Commodity Index Trust Shares, and 

Commodity Futures Trust Shares are 

included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because 

shares of these securities are passive 

investment vehicles that hold a 

beneficial interest in a specified 

commodity trust that is not managed 

like a corporation and does not have 

officers or a board of directors. These 

securities are already exempt from 

Exchange Rule 14.10(c)(2) (Independent 

Directors), Exchange Rule 14.10(c)(4) 

(Independent Director Oversight of 

Executive Officer Compensation), 

Exchange Rule 14.10(c)(5) (Independent 

Director Oversight of Director 

Nominations), and Exchange Rule 

14.10(d) (Code of Conduct). In addition, 

while shareholders may have limited 

voting rights in certain circumstances, 

they do not have the right to elect 

directors. Therefore, given the limited 

voting rights, lack of directors or 

officers, and the passive nature of the 

trust, the Exchange believes these 

securities should not be subject to the 

annual meeting requirements of 

Exchange Rule 14.10(f). The Exchange 

notes that these issuers may still be 

required to hold shareholder meetings, 

including special meetings, as required 

by federal or state law or their governing 

documents. The Exchange also notes 

that these securities are already 

similarly exempted from the same 

corporate governance requirements on 

other exchanges.80

Partnership Units 

The Exchange also believes that it is 

appropriate that Partnership Units are 

included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because 

Partnership Units are passive 


ddrumheller on DSK120RN23PROD with NOTICES1
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81 Id. 

82See Exchange Rule 14.10 Interpretation and 

Policy .15. 

83Nasdaq Listing Rule 5615(a)(6) and Arca Rule 

5.3–E. See also Securities Exchange Act No. 86072 

(June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– 

NASDAQ–2019–039) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend Nasdaq Rule 5615 To Allow Additional 

Issuers Who List Only Specific Securities To Be 

Able To Avail Themselves of Certain Exemptions 

Under Corporate Governance Requirements and To 

Amend Nasdaq Rule IM–5620 To Exclude 

Additional Categories of Issuers Listing Only 

Specific Securities From the Annual Shareholder 

Meeting Requirement); Securities Exchange Act No. 

83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 

(SR–NYSEArca–2018–31) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend NYSE Arca Rule 5.3–E To Exclude 

Certain Categories of Issuers From the Exchange’s 

Annual Meeting Requirement). 

84See Exchange Rule 14.10(e)(1)(E). 

85Nasdaq Listing Rule 5615(a)(6) and Arca Rule 

5.3–E. See also Securities Exchange Act Nos. 86072 

(June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– 

NASDAQ–2019–039) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Amend Nasdaq Rule 5615 To Allow Additional 

Issuers Who List Only Specific Securities To Be 

Able To Avail Themselves of Certain Exemptions 

Under Corporate Governance Requirements and To 

Amend Nasdaq Rule IM–5620 To Exclude 

Additional Categories of Issuers Listing Only 

Specific Securities From the Annual Shareholder 

Meeting Requirement); 83324 (May 24, 2018) 83 FR 

25076 (May 31, 2018) (SR–NYSEArca–2018–31) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend NYSE Arca Rule 

5.3–E To Exclude Certain Categories of Issuers From 

the Exchange’s Annual Meeting Requirement); 

88561 (April 3, 2020) 85 FR 19984 (April 9, 2020) 

(SR–NASDAQ–2019–090) (Notice of Filing of 

Amendment No. 4 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 4, To Adopt Nasdaq Rule 5704 

Governing the Listing and Trading of Exchange 

Traded Fund Shares); and 88625 (April 13, 2020) 

85 FR 21479 (April 17, 2020) (SR–NYSEArca–2019– 

81) (Notice of Filing of Amendment No. 2 and 

Order Granting Accelerated Approval of a Proposed 

Rule Change, as Modified by Amendment No. 2, to 

Adopt NYSE Arca Rule 5.2–E(j)(8) Governing the 

Listing and Trading of Exchange-Traded Fund 

Shares). 

86See Exchange Rule 14.10(e)(1)(E). 

87See Nasdaq Rule 5615(6)(B). See also Securities 

Exchange Act No. 93467 (October 29, 2021) 86 FR 

60930 (November 4, 2021) (SR–NASDAQ–2021– 

083) (Notice of Filing and Immediate Effectiveness 

of Proposed Rule Change To Exempt Certain 

Categories of Investment Companies Registered 

Under the Investment Company Act of 1940 From 

the Requirements To Obtain Shareholder Approval 

Prior to the Issuance of Securities in Connection 

investment vehicles that hold a 

beneficial interest in a specified 

partnership that is not managed like a 

corporation and does not have a board 

of directors. In addition, the Exchange 

believes Partnership Units should not be 

subject to the annual meeting 

requirements of Exchange Rule 14.10(f) 

because holders have limited voting 

rights and the general partner oversees 

the operation of the partnership. The 

Exchange notes that these issuers may 

still be required to hold shareholder 

meetings, including special meetings, as 

required by federal or state law or their 

governing documents. The Exchange 

notes that Partnership Units are already 

similarly exempted from the same 

corporate governance requirements on 

other exchanges.81

Trust Issued Receipts 

The Exchange believes it is 

appropriate that Trust Issued Receipts 

are included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because 

Trust Issued Receipts are passive 

investment vehicles that hold a 

beneficial interest in a specified 

partnership that is not managed like a 

corporation and does not have a board 

of directors. In addition, the Exchange 

believes that Trust Issued Receipts 

should not be subject to the annual 

meeting requirements of Exchange Rule 

14.10(f) because these securities are 

currently exempt from this rule.82 The 

Exchange notes that Trust Issued 

Receipts are already similarly exempted 

from the same corporate governance 

requirements on other exchanges.83

Managed Fund Shares and ETF Shares 

The Exchange believes it is 

appropriate that Managed Fund Shares 

and ETF Shares are included in the 

Proposed Definition and, therefore, 

entitled to the exemptions proposed 

herein because they currently exempt 

from the provisions of Exchange Rule 

14.10(c)(2) (Independent Directors), 

Exchange Rule 14.10(c)(4) (Independent 

Director Oversight of Executive Officer 

Compensation), Exchange Rule 

14.10(c)(5) (Independent Director 

Oversight of Director Nominations), and 

Exchange Rule 14.10(d) (Code of 

Conduct).84 In addition, the Exchange 

believes that it is appropriate to exempt 

Managed Fund Shares and ETF Shares 

from the annual meeting requirements 

of Exchange Rule 14.10(f) because like 

Index Fund Shares (which are currently 

provided an exemption from the annual 

meeting) the aforementioned securities 

are issued by an open-end investment 

company registered under the 1940 Act 

that are available for creation and 

redemption on a continuous basis, and 

require dissemination of an intraday 

portfolio value. These requirements 

provide important investor protections 

and ensure that the net asset value and 

the market price remain closely tied to 

one another while maintaining a liquid 

market for the security. These 

protections, along with the disclosure 

documents regularly received by 

investors, allow shareholders of 

Managed Fund Shares and ETF Shares 

to value their holdings on an ongoing 

basis and lessen the need for 

shareholders to directly deal with 

management at an annual meeting. 

Therefore, the Exchange further believes 

it is appropriate that these be afforded 

the proposed exemptions to the annual 

meeting requirements. The Exchange 

notes that these issuers may still be 

required to hold shareholder meetings, 

including special meetings, as required 

by federal or state law or their governing 

documents. The Exchange notes that 

Managed Fund Shares and ETF Shares 

are already similarly exempted from the 

same corporate governance 

requirements on other exchanges.85

Managed Portfolio Shares and Tracking 

Fund Shares 

The Exchange believes it is 

appropriate that Managed Portfolio 

Shares and Tracking Fund Shares are 

included in the Proposed Definition 

and, therefore, entitled to the 

exemptions proposed herein because it 

is currently exempt from certain 

provisions of Rule 14.10.86 In addition, 

the Exchange believes that it is 

appropriate to exempt Managed 

Portfolio Shares and Tracking Fund 

Shares from the annual meeting 

requirements of Exchange Rule 14.10(f) 

because like Index Fund Shares (which 

are currently provided an exemption 

from the annual meeting) the 

aforementioned securities are issued by 

an open-end investment company 

registered under the 1940 Act that are 

available for creation and redemption 

on a continuous basis, and require 

dissemination of an intraday portfolio 

value. These requirements provide 

important investor protections and 

ensure that the net asset value and the 

market price remain closely tied to one 

another while maintaining a liquid 

market for the security. These 

protections, along with the disclosure 

documents regularly received by 

investors, allow shareholders of 

Managed Portfolio Shares and Tracking 

Fund Shares to value their holdings on 

an ongoing basis and lessen the need for 

shareholders to directly deal with 

management at an annual meeting. 

Therefore, the Exchange further believes 

it is appropriate that these be afforded 

the proposed exemptions to the annual 

meeting requirements. The Exchange 

notes that these issuers may still be 

required to hold shareholder meetings, 

including special meetings, as required 

by federal or state law or their governing 

documents. The Exchange also notes 

that Managed Portfolio Shares and 

Tracking Fund Shares are already 

similarly exempted from the same 

corporate governance requirements on 

another exchange.87


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With Acquisitions of the Stock or Assets of an 

Affiliated Registered Investment Company Under 

Certain Conditions). 

88See Nasdaq Listing Rule 5615(a)(6)(B). See also 

Securities Exchange Act No. 86072 (June 10, 2019) 

84 FR 27816 (June 14, 2019) (SR–NASDAQ–2019– 

039) (Notice of Filing and Immediate Effectiveness 

of Proposed Rule Change To Amend Nasdaq Rule 

5615 To Allow Additional Issuers Who List Only 

Specific Securities To Be Able To Avail Themselves 

of Certain Exemptions Under Corporate Governance 

Requirements and To Amend Nasdaq Rule IM–5620 

To Exclude Additional Categories of Issuers Listing 

Only Specific Securities From the Annual 

Shareholder Meeting Requirement); Securities 

Exchange Act No. 83324 (May 24, 2018) 83 FR 

25076 (May 31, 2018) (SR–NYSEArca–2018–31) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend NYSE Arca Rule 

5.3–E To Exclude Certain Categories of Issuers From 

the Exchange’s Annual Meeting Requirement). 

89See Nasdaq Listing Rule 5605(a)(2). See also 

Securities and Exchange Act Nos. 86095 (June 12, 

2019) 84 FR 28379 (June 18, 2019) (SR–NASDAQ– 

2019–049) (Notice of Filing of Proposed Rule 

Change To Amend the Definition of Family Member 

in Listing Rule 5605(a)(2) for Purposes of the 

Definition of Independent Director); and 88210 

(February 13, 2020) 52 FR 9816 (February 20, 2020) 

(Notice of Filing of Amendment No. 3 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 3, To 

Amend the Definition of Family Member in Listing 

Rule 5605(a)(2) for Purposes of the Definition of 

Independent Director). 

90Rule 14.10(c)(1)(B)(ii). 

91Rule 14.10(c)(1)(B)(iii). 

92Rule 14.10(c)(1)(B)(iv). 

93Rule 14.10(c)(1)(B)(v). 

94Rule 14.10(c)(1)(B)(vi). 

95Rule 14.10(c)(1)(B) 

96See Securities Exchange Act No. 88210 

(February 13, 2020) 52 FR 9816 (February 20, 2020) 

(Notice of Filing of Amendment No. 3 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 3, To 

Amend the Definition of Family Member in Listing 

Rule 5605(a)(2) for Purposes of the Definition of 

Independent Director). 

Managed Trust Securities 

The Exchange believes that it is 

appropriate to exempt Managed Trust 

Securities from the annual meeting 

requirements of Exchange Rule 14.10(f) 

because like Index Fund Shares (which 

are currently provided an exemption 

from the annual meeting) the 

aforementioned securities are issued by 

an open-end investment company 

registered under the 1940 Act that are 

available for creation and redemption 

on a continuous basis and require 

dissemination of an intraday portfolio 

value. These requirements provide 

important investor protections and 

ensure that the net asset value and the 

market price remain closely tied to one 

another while maintaining a liquid 

market for the security. These 

protections, along with the disclosure 

documents regularly received by 

investors, allow shareholders of 

Managed Trust Securities to value their 

holdings on an ongoing basis and lessen 

the need for shareholders to directly 

deal with management at an annual 

meeting. Therefore, the Exchange 

further believes it is appropriate that 

these be afforded the proposed 

exemptions to the annual meeting 

requirements. The Exchange notes that 

these issuers may still be required to 

hold shareholder meetings, including 

special meetings, as required by federal 

or state law or their governing 

documents. The Exchange also notes 

that Managed Trust Securities are 

already similarly exempted from the 

same corporate governance 

requirements on other exchanges.88

(6) Definition of ‘‘Family Member’’ 

The Exchange is proposing to modify 

the definition of ‘‘Family Member’’ for 

purposes of director independence 

under Rule 14.10(c)(1)(B) to mean a 

person’s spouse, parents, children, 

siblings, mothers and fathers-in-law, 

sons and daughters-in-law, brothers and 

sisters-in-law, and anyone (other than 

domestic employees) who shares such 

person’s home. The purpose of this rule 

change is to exclude domestic 

employees who share the director’s 

home, and stepchildren who do not 

share the director’s home, from the type 

of relationships that always preclude a 

board from finding that a director is 

independent, as described below. The 

proposed definition is substantively 

similar to a proposal that has been 

considered and approved by the 

Commission.89

Rule 14.10(c)(1)(B) provides a list of 

certain relationships that preclude a 

board from finding that a director is 

independent (the ‘‘Bright-Line 

Independence Test’’). These objective 

measures provide transparency to 

investors and companies, facilitate 

uniform application of the rules, and 

ease administration. The Exchange’s 

Rules preclude a director from being 

considered independent if the director 

has a family member who, among other 

things, (i) accepted any compensation 

from the Company in excess of $120,000 

during any period of twelve consecutive 

months within the three years preceding 

the determination of independence 

(with certain exceptions); 90 (ii) is, or at 

any time during the past three years 

was, employed by the company as an 

Executive Officer; 91 (iii) is a partner in, 

or a controlling Shareholder or an 

Executive Officer of, any organization to 

which the Company made, or from 

which the Company received, payments 

for property or services in the current or 

any of the past three fiscal years that 

exceed 5% of the recipient’s 

consolidated gross revenues for that 

year, or $200,000, whichever is more 

(with certain exceptions); 92 (iv) is 

employed as an Executive Officer of 

another entity where at any time during 

the past three years any of the Executive 

Officers of the Company served on the 

compensation committee of such other 

entity; 93 or (v) is a current partner of the 

Company’s outside auditor, or was a 

partner or employee of the Company’s 

outside auditor who worked on the 

Company’s audit at any time during any 

of the past three years.94

Currently, for purposes of the 

Exchange’s Rules, Family Member 

means a person’s spouse, parents, 

children and siblings, whether by blood, 

marriage or adoption, or anyone 

residing in such person’s home.95 This 

definition includes stepchildren, as they 

are ‘‘children by . . . marriage.’’ 

As noted above, the Exchange 

proposes to define a Family Member to 

mean a person’s spouse, parents, 

children, siblings, mothers and fathersin-law, sons and daughters-in-law, 

brothers and sisters-in-law, and anyone 

(other than domestic employees) who 

shares such person’s home. The 

Exchange also proposes to interpret the 

term ‘‘children’’ to exclude stepchildren 

except that a relationship with a 

stepchild who shares a home with the 

director would continue to fall under 

the Bright-line Independence Test 

because the definition of a Family 

Member will include anyone (other than 

domestic employees) who shares the 

director’s home. To comply with the 

Exchange’s rules, it will expect the 

Boards of its listed companies to 

continue to elicit through director 

questionnaires the information 

necessary to make independence 

determinations, which will need to 

include questions about stepchild 

relationships. As noted in the order 

approving a substantively similar rule, 

the Commission stated that it ‘‘believes 

that this should help to ensure that 

listed companies inquire about 

stepchild relationships so that such 

companies can discern the essential 

facts and circumstances to be able to 

make the affirmative findings necessary 

under Nasdaq rules to determine a 

director is independent.’’ 96

The Exchange has concluded that 

inclusion of stepchildren in the 

definition of a Family Member makes 

the definition over-inclusive. The 

Bright-line Independence Test is 

intended to identify relationships that 

are likely to interfere with the exercise 

of independent judgment in carrying out 

the director’s responsibilities. In that 

regard the Exchange believes that a 

director’s relationship with their 

stepchildren may or may not interfere 


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97See Nasdaq Listing Rule 5605(a)(2). 

98 Id. 

99Rule 14.10(c)(3)(B) requires that each Company 

must have, and certify that it has and will continue 

to have, an audit committee of at least three 

members, each of whom must, among other 

requirements, meet the criteria for independence set 

forth in Rule 10A–3(b)(1) under the Act, in addition 

to the requirements of Rule 14.10(c)(3)(B). See also 

Exchange Rule 14.10 Interpretation and Policy .05 

(Audit Committee Composition). 

100See Securities Exchange Act No. 88210 

(February 13, 2020) 52 FR 9816 (February 20, 2020) 

(Notice of Filing of Amendment No. 3 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 3, To 

Amend the Definition of Family Member in Listing 

Rule 5605(a)(2) for Purposes of the Definition of 

Independent Director). 

101See Nasdaq Listing Rules 5615(a)(4)(E) and 

5620(c). See Securities and Exchange Act Nos. 

90883 (January 11, 2021) 86 FR 4158 (January 15, 

2021) (SR–NASDAQ–2020–100) (Notice of Filing of 

Proposed Rule Change To Modify the Quorum 

Requirement for Non-U.S. Companies Under 

Certain Limited Circumstances); and 91567 (April 

14, 2021) 86 FR 20556 (April 20, 2021) (Notice of 

Filing of Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To Modify the 

Quorum Requirement). 

102See Exchange Rule 14.10(f)(1). 

103For example, Delaware allows companies to 

establish their own quorum requirements in their 

certificates of incorporation or bylaws, provided 

that the quorum must be at least one-third of the 

shares entitled to vote on the matter. In the absence 

of a quorum provision in the company’s certificate 

of incorporation or bylaws, Delaware requires a 

quorum of 50% of the shares entitled to vote on the 

matter. See Del. Code Sec. 216. 

with the director’s exercise of 

independent judgment based on the 

particular facts and circumstances of the 

situation. If a stepchild has been a 

dependent of a director or was a part of 

the director’s household since being a 

minor, the director’s relationship with 

that stepchild is likely to be similar to 

that with a biological child. However, 

the Exchange believes if the director 

marries a person who has an adult 

child, the director never acted in any 

capacity as a parent of this stepchild, 

and the stepchild never shared the 

director’s household, then the director 

and stepchild are likely to have an 

attenuated relationship that is unlike 

the relationship of a parent and child. 

Because the determination as to whether 

such relationship is likely to interfere 

with the exercise of independent 

judgment in carrying out the director’s 

responsibilities is based on facts and 

circumstances, the Exchange believes a 

company’s board is in the best position 

to make such a determination. 

Accordingly, the Exchange believes that 

a stepchild relationship should not 

preclude a director from being 

considered independent in all 

circumstances. Notwithstanding, if a 

stepchild shares a home with the 

director, such a relationship would 

continue to fall under the Bright-line 

Independence Test because the 

definition of a Family Member will 

include anyone (other than domestic 

employees) who shares the director’s 

home. 

In addition, the Exchange believes 

that the proposed change would align 

the language in its definition of a Family 

Member with the comparable definition 

of a Family Member or an immediate 

family member of the Nasdaq.97 When 

each market has a different definition, it 

complicates the preparation by listed 

companies of director and officer 

questionnaires that the companies need 

in order to analyze director 

independence. In particular, this creates 

an added and unnecessary burden when 

a company transfers its listing from one 

national securities exchange to another. 

In such case, a director may have 

already filled out an annual 

questionnaire based on the prior listing 

exchange’s definition of a family 

member but need to answer additional 

questions because the definition of the 

exchange the listing is transferred to is 

phrased differently. 

The Exchange is also proposing to 

modify the definition of a ‘‘Family 

Member’’ for purposes of director 

independence under Rule 14.10(c)(1)(B) 

to exclude domestic employees who 

share a director’s home. The Exchange 

believes that the definition of a Family 

Member should not include a domestic 

employee who shares a director’s home 

because this definition is not intended 

to capture commercial relationships. 

Accordingly, as described above the 

Exchange is proposing to modify the 

definition of a Family Member for 

purposes of director independence 

under Rule 14.10(c)(1)(B) to mean a 

person’s spouse, parents, children, 

siblings, mothers and fathers-in-law, 

sons and daughters-in-law, brothers and 

sisters-in-law, and anyone (other than 

domestic employees) who shares such 

person’s home. This definition is 

identical to the Nasdaq definition of a 

Family Member.98

Additionally, the Exchange notes that 

the proposed rule change to Rule 

14.10(c)(1)(B) will not affect the 

additional independence criteria for 

audit committee members set forth in 

Rule 14.10(c)(3), which incorporate the 

independence requirements of SEC Rule 

10A–3.99 Thus, the broader exclusion 

from the definition of Family Member, 

as it applies to minor stepchildren not 

sharing the director’s home, may not be 

applied for purposes of determining the 

independence of audit committee 

members, where the stricter standards of 

Rule 10A–3, as well as Exchange Rule 

14.10(c)(3), still apply.100

Notwithstanding these changes, the 

Exchange notes that a company’s board 

must, under 14.10(c)(3)(B) and 

Interpretation and Policy .05, 

affirmatively determine that no 

relationship exists that would interfere 

with the exercise of independent 

judgment in carrying out the director’s 

responsibilities. To comply with the 

Exchange’s rules, the Exchange will 

expect listed companies’ boards to 

continue to elicit through director and 

officer questionnaires the information 

necessary for the boards to make such 

determinations, which will need to 

include questions about stepchild 

relationships. The Exchange believes 

that it is appropriate for the board to 

review a relationship between a director 

and a stepchild who does not share a 

home with the director or a relationship 

between a director and a domestic 

employee under such facts and 

circumstances test. 

(7) Quorum Requirement 

The Exchange is proposing to modify 

Exchange Rules 14.10(e)(1)(D)(iv) and 

14.10(f)(3)(ii) (the ‘‘Quorum Rules’’) to 

allow the Exchange to accept a quorum 

less than 331⁄3% of the outstanding 

shares of a company’s common voting 

stock where the Company is 

incorporated outside of the U.S. and 

such Company’s home country law 

prohibits the company from establishing 

a quorum that satisfies the Quorum 

Rules. The Exchange notes that these 

proposed rules are substantively similar 

to existing rules of another exchange.101

Exchange Rule 14.10(f)(3) establishes 

quorum requirements for an annual 

meeting of shareholders for Exchange 

Companies listing common stock or 

voting preferred stock, and their 

equivalents.102 Under this rule, each 

company that is not a limited 

partnership must provide for a quorum 

as specified in its by-laws for any 

meeting of the holders of common stock; 

provided, however, that in no case shall 

such quorum be less than 331⁄3% of the 

outstanding shares of the company’s 

common voting stock (the ‘‘Exchange 

Quorum Requirement’’). The Exchange 

notes that domestic listed companies are 

subject to quorum requirements under 

the laws of their states of 

incorporation.103

Now, the Exchange proposes to 

modify the Exchange Quorum 

Requirement to allow the Exchange to 

accept any quorum requirement for a 

non-U.S. company if such company’s 

home country law mandates such 

quorum for the shareholders’ meeting 

and prohibits the company from 

establishing the higher quorum required 


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104See Nasdaq Listing Rules 5615(a)(4)(E) and 

5620(c). See Securities and Exchange Act Nos. 

90883 (January 11, 2021) 86 FR 4158 (January 15, 

2021) (SR–NASDAQ–2020–100) (Notice of Filing of 

Proposed Rule Change To Modify the Quorum 

Requirement for Non-U.S. Companies Under 

Certain Limited Circumstances); and 91567 (April 

14, 2021) 86 FR 20556 (April 20, 2021) (Notice of 

Filing of Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To Modify the 

Quorum Requirement). 

105 Id. 

106 15 U.S.C. 78f(b). 

107 15 U.S.C. 78f(b)(5). 

108 Id. 

109See Securities Exchange Act Nos. 68013 

(October 9, 2012) 77 FR 62563 (October 15, 2012) 

(SR–NASDAQ–2012–109) (Notice of Filing of 

Proposed Rule Change To Modify the Listing Rules 

for Compensation Committees To Comply With 

Rule 10C–1 Under the Exchange Act and Make 

Other Related Changes) 68640 (January 11, 2013) 78 

FR 4554 (January 22, 2013) (Order Granting 

Accelerated Approval of Proposed Rule Change as 

Modified by Amendment Nos. 1 and 2 To Amend 

the Listing Rules for Compensation Committees To 

Comply With Rule 10C–1 Under the Act and Make 

Other Related Changes). 

110 Id. 

111 Id. 

112 Id. 

by the Exchange Quorum Requirement. 

The Exchange proposes to require that 

a company relying on this provision 

shall submit to the Exchange a written 

statement from an independent counsel 

in such company’s home country 

describing the home country law that 

conflicts with the Exchange quorum 

requirement. The Exchange also 

proposes to require such counsel to 

certify that, as the result of the conflict 

with the home country law, the 

company is prohibited from complying 

with the Exchange Quorum 

Requirement, and the company cannot 

obtain an exemption or waiver from that 

law. Finally, to assure appropriate 

disclosure, the Exchange proposes to 

require that any company relying on 

this exception from the Exchange 

Quorum Requirement must make a 

public announcement as promptly as 

possible but not more than four business 

days following the submission of the 

independent counsel’s statement to the 

Exchange, as described above, on or 

through the Company’s website and 

either by filing a Form 8–K, where 

required by SEC rules, or by issuing a 

press release explaining the Company’s 

reliance on the exception.104

In addition, to help assure continuous 

transparency, the Exchange proposes to 

require that such website disclosure is 

maintained for the period of time the 

company continues to rely on the 

exception from the quorum 

requirements. Finally, to help assure the 

exception remains appropriate, the 

Exchange proposes to require the 

company to update the website 

disclosure at least annually to indicate 

that the company continues to be 

prohibited under its home country law 

from complying with the Exchange’s 

quorum requirements as of the date of 

such update.105

The Exchange also proposes to modify 

Exchange Rule 14.10(e)(1)(D)(iv) 

governing the quorum requirements for 

limited partnerships listed on the 

Exchange to also reflect this change to 

the Exchange Quorum Requirement. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder applicable to the Exchange 

and, in particular, the requirements of 

Section 6(b) of the Act.106 Specifically, 

the Exchange believes the proposed rule 

change is consistent with the Section 

6(b)(5) 107 requirements that the rules of 

an exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. 

Additionally, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 108 requirement that 

the rules of an exchange not be designed 

to permit unfair discrimination between 

customers, issuers, brokers, or dealers. 

(1) Compensation-Related Listing Rules 

The proposal first requires that the 

compensation of Executive Officers 

must be determined by a compensation 

committee and eliminates the existing 

Alternative for such compensation. 

Although the Alternative to a formal 

committee in the Exchange’s current 

rules may be useful to a small number 

of prospective companies, the Exchange 

believes that the heightened importance 

of compensation decisions and 

oversight of executive compensation in 

today’s environment, as well as the 

benefits that can result for investors of 

having a standing committee overseeing 

compensation matters, makes it 

appropriate and consistent with investor 

protection and the public interest under 

Section 6(b)(5) of the Act for the 

Exchange to raise its standards in this 

regard.109 In the Commission’s approval 

order for a similar proposed rule change 

to Nasdaq rules, the Commission stated: 

In making this determination the 

Commission is aware that Rule 10C–1 does 

not require listed companies of national 

securities exchanges to have a committee 

dedicated to compensation matters. 

Nevertheless, it is consistent with Section 

6(b)(5) of the Act for Nasdaq to require all its 

listed companies to have an independent 

compensation committee overseeing 

executive compensation matters because of 

the importance and accountability to 

investors that such a formal structure can 

provide. The Commission also notes that 

some of the other requirements of Rule 10C– 

1 apply only when a company has a 

committee overseeing compensation matters. 

Thus, the requirement to have a 

compensation committee will trigger the 

additional protections for shareholders 

created by these requirements.110

The Exchange also believes it is 

appropriate to raise its standards to 

require the compensation committee of 

each issuer to have at least two 

members, instead of permitting a sole 

individual to be responsible for 

compensation policy, and that this 

furthers investor protection and the 

public interest in accordance with 

Section 6(b)(5).111 The Commission 

agreed in its approval of a substantively 

similar rule on Nasdaq when it stated: 

In light of the importance of compensation 

matters, the added thought and objectivity 

that is likely to result when two or more 

individuals deliberate over how much a 

listed company should pay its executives, 

and what form such compensation should 

take, is consistent with the goal of promoting 

more accountability to shareholders on 

executive compensation matters. Moreover, 

given the complexity of executive 

compensation packages for corporate 

executives, it is reasonable for Nasdaq to 

require listed companies to have the input of 

more than one committee member on such 

matters.112

Moreover, no Companies currently 

listed on the Exchange has a 

compensation committee of only one 

member. Therefore, the two-member 

requirement will not be an onerous 

burden for Companies listed on the 

Exchange and should strength their 

review of compensation matters. 

The Exchange’s proposal to require a 

compensation committee to have a 

written charter detailing the 

committee’s authority and responsibility 

is also consistent with Section 6(b)(5) of 

the Act and will provide added 

transparency for shareholders regarding 

how a company determines 

compensation and may clarify and 

improved the process itself. In an 

approval order for a substantively 

similar rule on Nasdaq, the Commission 

stated that ‘‘the requirement that listed 

companies review and reassess the 

adequacy of the compensation’s 


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113 Id. 

114 Id. 

115 Id. 

116See Securities Exchange Act Release No. 

67220 (June 20, 2012), 77 FR 38422, 38425 (June 27, 

2012), at 38438 (quoting Securities Exchange Act 

Release No. 54302A (August 29, 2006), 71 FR 

53158, 53192 (September 8, 2006)). 117See 17 CFR 240.10C–1(b)(5)(ii). 118See Securities Exchange Act Nos. 68013 

(October 9, 2012) 77 FR 62563 (October 15, 2012) 

(SR–NASDAQ–2012–109) (Notice of Filing of 

Proposed Rule Change To Modify the Listing Rules 

for Compensation Committees To Comply With 

Rule 10C–1 Under the Exchange Act and Make 

Other Related Changes) 68640 (January 11, 2013) 78 

FR 4554 (January 22, 2013) (Order Granting 

Accelerated Approval of Proposed Rule Change as 

Modified by Amendment Nos. 1 and 2 To Amend 

the Listing Rules for Compensation Committees To 

Comply With Rule 10C–1 Under the Act and Make 

Other Related Changes). 

119See Securities and Exchange Act Release No. 

68238 (November 15, 2012) 77 FR 69911 (November 

21, 2012) (SR–NASDAQ–2012–128) (Notice of 

Filing and Immediate Effectiveness of Proposed 

Rule Change To Expand the Exemption to the Direct 

Registration Program Requirement to All Foreign 

Issuers Rather Than Only Foreign Private Issuers). 

120See Securities and Exchange Act Nos. 77481 

(March 30, 2016) 81 FR 19678 (April 5, 2016) (SR– 

NASDAQ–2016–013) (Notice of Filing of Proposed 

Rule Change To Require Listed Companies to 

Publicly Disclose Compensation or Other Payments 

by Third Parties to Board of Director’s Members or 

Nominees); 78223 (July 1, 2016) 81 FR 44400 (July 

7, 2016) (Notice of Filing of Amendment No. 2 and 

Order Granting Accelerated Approval of a Proposed 

Rule Change, as Modified by Amendment No. 2, To 

committee charter on an annual basis 

will also help to ensure accountability 

and transparency on an on-going 

basis.’’ 113

The Exchange believes that the 

proposed ‘‘Exceptional and Limited 

Circumstances’’ provision, which allows 

one director who fails to meet the 

Exchange’s Independent Director 

definition to serve on a compensation 

committee under certain conditions, is 

an appropriate means to allow 

Companies flexibility as to board and 

committee membership and 

composition in unusual circumstances, 

which may be particularly important for 

smaller Companies. Further, the 

Commission long ago approved as 

consistent with the Act the same 

exception and concept in the context of 

the Exchange’s Independent Director 

under Exchange Rule 14.10(c)(1)(B), 

with respect to nominations committees 

and audit committees, and approved a 

substantively similar provision on 

another exchange.114

The Exchange believes the proposal to 

provide under proposed Rule 

14.10(c)(4)(D), that for purposes of this 

Rule, the compensation committee is 

not required to conduct an 

independence assessment for a 

compensation adviser that acts in a role 

limited to certain activities provided 

under Item 407(e)(3)(iii) of Regulation 

S–K will add clarity to the Exchange’s 

rules. 

The Exchange believes its proposal to 

prohibit a director who receives 

compensation or fees from a listed 

company (other than, among other 

things, director compensation) from 

serving on the Company’s compensation 

committee will protect investors and the 

public interest. Specifically, a director’s 

receipt of compensatory fees from a 

company (other than compensation for 

board and board committee service or 

compensation under a retirement plan 

or prior service with the company as 

described above) could render the 

member unwilling or unable to provide 

a truly independent voice on executive 

compensation decisions. The Exchange 

believes the restriction is warranted 

given the heightened importance of 

executive compensation decisions in 

today’s business environment. 

Moreover, in its approval order of a 

similar Nasdaq proposal,115 the 

Commission stated that it believes the 

restriction will ‘‘help to ensure that 

compensation committee members 

cannot receive directly or indirectly fees 

that could potentially influence their 

decisions on compensation matters.’’ 

The Exchange believes its proposal to 

move Rule 14.10(e)(1)(F) to proposed 

Rule 14.10(c)(4)(F) and to clarify the 

specific provisions under which a 

Smaller Reporting Company is exempt 

from the requirements of Rule 14.10(c) 

will provide additional clarity to the 

Exchange’s rulebook. As discussed 

above, Smaller Reporting Companies 

will continue to be subject to the same 

requirements as all other Companies, 

except the requirements relating to 

compensatory fees, affiliation and the 

specific compensation committee 

responsibilities and authority set forth 

in proposed Exchange Rule 

14.10(c)(4)(C)(iv). The Exchange 

believes that this hybrid approach does 

not discriminate unfairly between 

issuers because it recognizes the fact 

that the ‘‘ ‘executive compensation 

arrangements of [Smaller Reporting 

Companies] generally are so much less 

complex than those of other public 

companies that they do not warrant the 

more extensive disclosure requirements 

imposed on companies that are not 

[Smaller Reporting Companies] and 

related regulatory burdens that could be 

disproportionate for [Smaller Reporting 

Companies].’ ’’ 116 In addition, the 

Exchange notes that the Commission 

exempted Smaller Reporting Companies 

from Rule 10C–1.117 As a result, this 

distinction does not discriminate 

unfairly among issuers. 

Finally, the Exchange believes the 

proposed non-substantive ministerial 

changes to the language of Rule 14.10(c) 

will add clarity to the Exchange’s 

rulebook. 

As noted above, all of the proposed 

changes to the Exchange’s compensation 

committee requirements are 

substantively similar to proposed rules 

already considered and approved by the 

Commission.118

(2) Direct Registration Program 

The proposed rule change as it 

pertains to the Exchange’s DRP is 

consistent with the investor protection 

objectives of the Act in that it will 

provide a very limited exemption to the 

Exchange’s DRP eligibility requirements 

for foreign issuers that provide a letter 

from home country counsel certifying 

that compliance with that requirement 

is prohibited by home country law or 

regulation. Further, the proposed rule 

change should facilitate cooperation and 

coordination among clearing agencies, 

transfer agents, and broker-dealers by 

explaining the basis upon which certain 

foreign issuers are not required to 

participate in the DRP. This, in turn, 

should facilitate better efficiency in the 

clearance and settlement of securities 

transactions involving the securities of 

these foreign issuers and should 

facilitate better efficiency in the transfer 

of such securities. The Exchange notes 

that its proposal is substantively similar 

to proposed amendments Nasdaq made 

to its Rules 5210(c) and 5255(c),119 and 

thus raises no novel issues. 

(3) Public Disclosure 

The proposal to require an additional 

public disclosure accomplishes the 

objectives of the Act by enhancing 

transparency around third party 

compensation and payments made in 

connection with board service. The 

Exchange believes such disclosure has 

several benefits. First, it would provide 

information to investors to help them 

make meaningful investing and voting 

decisions. It would also address 

potential concerns that undisclosed 

third-party compensation arrangements 

may lead to conflicts of interest among 

directors and call into question their 

ability to satisfy fiduciary duties. In an 

approval for a substantively similar 

proposed rule change on another 

exchange, the Commission stated ‘‘to 

the extent that [the proposal] would, in 

certain situations, provide investors and 

market participants additional 

information to make informed 

investment and voting decisions, we 

believe it is consistent with the 

requirements of Section 6(b)(5) of the 

Act.’’ 120


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Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12935 

Require Listed Companies to Publicly Disclose 

Compensation or Other Payments by Third Parties 

to Board of Director’s Members or Nominees). 

121 Id. 

122 Id. 

123See Securities Exchange Act Nos. 82702 

(February 13, 2018) 83 FR 7269 (February 20, 2018) 

(SR–NASDAQ–2018–008) (Notice of Filing of 

Proposed Rule Change To Modify the Listing 

Requirements Contained in Listing Rule 5635(d) To 

Change the Definition of Market Value for Purposes 

of the Shareholder Approval Rules and Eliminate 

the Requirement for Shareholder Approval of 

Issuances at a Price Less Than Book Value but 

Greater Than Market Value) and 84287 (September 

26, 2018) 83 FR 49599 (October 2, 2018) (Notice of 

Filing of Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To Modify the 

Listing Requirements Contained in Listing Rule 

5635(d) To Change the Definition of Market Value 

for Purposes of the Shareholder Approval Rule and 

Eliminate the Requirement for Shareholder 

Approval of Issuances at a Price Less Than Book 

Value but Greater Than Market Value). See also 

Securities Exchange Act No. 88056 (January 28, 

2020) 85 FR 6003 (February 3, 2020) (SR– 

NASDAQ–2020–004) (Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change 

to Clarify the Term ‘‘Closing Price’’ in Rule 

5635(d)(1)(A) Relating to Shareholder Approval for 

Transactions Other Than Public Offerings). 

While there may be some overlap in 

the proposed disclosure requirement 

with existing Commission disclosure 

requirements, it is not unusual for a 

national securities exchange to adopt 

disclosure requirements in their listing 

rules that supplement or overlap with 

disclosure requirements otherwise 

imposed under federal securities laws. 

Such disclosure-related listing 

standards ‘‘help to ensure that listed 

companies maintain compliance with 

the disclosure requirements under the 

federal securities laws and contribute to 

the maintenance of fair and orderly 

markets by providing investors with 

material and current information 

necessary for informed investment and 

voting decisions.’’ 121 Further, as the 

proposed public disclosure requirement 

is substantively similar to a proposal 

already considered and approved by the 

Commission, it raises no novel 

issues.122

(4) Market Value Definition and 

Shareholder Approval 

The Exchange believes that the 

proposal to modify the measure of 

market value for the purpose of Rule 

14.10(i)(4) from the closing bid price to 

the lower of: (i) the closing price (as 

reflected on Cboe.com); or (ii) the 

average closing price of the common 

stock (as reflected on Cboe.com) for the 

five trading days immediately preceding 

the signing of the binding agreement 

will perfect the mechanism of a free and 

open market and protect investors and 

the public interest. Furthermore, the 

proposal is substantively similar to a 

proposed rule that was previously 

approved by the Commission.123

First, the Exchange believes using the 

proposed method for determining the 

market value has the potential to 

provide a better indication of the actual 

market value than the current use of 

closing bid price under certain market 

conditions. The Exchange also believes 

that the BZX Official Closing Price is 

less prone to manipulation than are bid 

prices. In addition, the Exchange 

believes the proposal to use the BZX 

Official Closing Price for purposes of 

market value should help to ensure 

transparency to investors in calculating 

market value for purposes of the 

proposed rule. 

Second, allowing share issuances to 

be priced at the five-day average of the 

closing price will further align the 

Exchange’s requirements with how 

many transactions are structured, such 

as transactions where Exchange Rule 

14.10(i) is not implicated because the 

issuance is for less than 20% of the 

common stock and the parties rely on 

the five-day average for pricing to 

smooth out unusual fluctuations in 

price. In so doing, the proposed rule 

change will perfect the mechanism of a 

free and open market. Further, allowing 

a five-day average price continues to 

protect investors and the public interest 

because it will allow companies and 

investors to price transactions in a 

manner designed to eliminate aberrant 

pricing resulting from unusual 

transactions on the day of a transaction. 

Maintaining the allowable average at 

just a five-day period also protects 

investors by ensuring the period is not 

too long, such that it would result in the 

price being distorted by ordinary past 

market movements and other outdated 

events. In a market that rises each day 

of the period, the five-day average will 

be less than the price at the end of the 

period, but would still be higher than 

the price at the start of such period. The 

Exchange believes that where two 

alternative measures of value exist that 

both reasonably approximate the value 

of listed securities, defining the 

Minimum Price as the lower of those 

values allows issuers the flexibility to 

use either measure because they can 

also sell securities at a price greater than 

the Minimum Price without needing 

shareholder approval. This flexibility, 

and the certainty that a transaction can 

be structured at either value in a manner 

that will not require shareholder 

approval, further perfects the 

mechanism of a free and open market 

without diminishing the existing 

investor protections of the 14.10(i). 

The Exchange also believes that 

eliminating the requirement for 

shareholder approval of issuances at a 

price less than book value but greater 

than market value does not diminish the 

existing investor protections of 

Exchange Rule 14.10(i)(4). Book value is 

primarily an accounting measure 

calculated based on historic cost and is 

generally perceived as an inappropriate 

measure of the current value of a stock. 

Because book value is not an 

appropriate measure of the current 

value of a stock, the elimination of the 

requirement for shareholder approval of 

issuances at a price less than book value 

but greater than market value will 

remove an impediment to, and perfect 

the mechanism of, a free and open 

market, which currently unfairly 

burdens companies in certain 

industries, without meaningfully 

diminishing investor protections of 

Exchange Rule 14.10(i)(4). 

The Exchange also believes that 

amending the title of 14.10(i)(4) and the 

preamble to replace references to 

‘‘private placements’’ to ‘‘transactions 

other than public offerings’’ to conform 

the language in the title of 14.10(i)(4) 

and the preamble to the language in the 

rule text and that of Rule 14.10 

Interpretation and Policy .18, which 

provides the definition of a public 

offering, will perfect the mechanism of 

a free and open market by making the 

rule easier to understand and apply. 

Private placements would continue to 

be considered ‘‘transactions other than 

public offerings’’ under the proposed 

rule change, and the proposed change 

does not change the essence of the 

current rule. 

The Exchange believes that amending 

Exchange Rule 14.10 Interpretation and 

Policy .18 and .19, which describe how 

the Exchange applies the shareholder 

approval requirements, to conform 

references to book and market value 

with the new definition of Minimum 

Price, as described above, and to utilize 

the newly defined term 20% Issuance 

will perfect the mechanism of a free and 

open market by eliminating confusion 

caused by references to a measure that 

is no longer applicable and by making 

the rule easier to understand and apply. 

(5) Exemptions to Certain Corporate 

Governance Requirements 

The Exchange believes that the 

proposed amendments to modify and 

expand the exemptions available to 

issuers of certain securities from some 

of the Exchange’s corporate governance 

requirements are consistent with the 

protection of investors. The Exchange 

believes that the proposed exemptions 

for issuers of only non-voting preferred 


ddrumheller on DSK120RN23PROD with NOTICES1
12936 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 

124See Nasdaq Listing Rule 5615(a)(6) and Arca 

Rule 5.3–E. 

125Rule 14.10(c)(3)(B) requires that each 

Company must have, and certify that it has and will 

continue to have, an audit committee of at least 

three members, each of whom must, among other 

requirements, meet the criteria for independence set 

forth in Rule 10A–3(b)(1) under the Act, in addition 

to the requirements of Rule 14.10(c)(3)(B). See also 

Exchange Rule 14.10 Interpretation and Policy .05 

(Audit Committee Composition). 

126See Nasdaq Listing Rule 5605(a)(2). See also 

Securities and Exchange Act Nos. 86095 (June 12, 

2019) 84 FR 28379 (June 18, 2019) (SR–NASDAQ– 

2019–049) (Notice of Filing of Proposed Rule 

Change To Amend the Definition of Family Member 

in Listing Rule 5605(a)(2) for Purposes of the 

Definition of Independent Director); and 88210 

(February 13, 2020) 52 FR 9816 (February 20, 2020) 

(Notice of Filing of Amendment No. 3 and Order 

Granting Accelerated Approval of a Proposed Rule 

Change, as Modified by Amendment No. 3, To 

Amend the Definition of Family Member in Listing 

Rule 5605(a)(2) for Purposes of the Definition of 

Independent Director). 

127See Nasdaq Listing Rules 5615(a)(4)(E) and 

5620(c). See Securities and Exchange Act Nos. 

90883 (January 11, 2021) 86 FR 4158 (January 15, 

2021) (SR–NASDAQ–2020–100) (Notice of Filing of 

stock, debt securities and Derivative 

Securities are consistent with the 

protection of investors, as the holders of 

these securities do not have voting 

rights with respect to the election of 

directors, except in very limited 

circumstances, as required by state or 

federal law or their governing 

documents. Moreover, such securities 

are generally issued by an entity that is 

either (i) structured solely as vehicles 

for the issuance of non-voting or 

derivative securities, or (ii) issued by an 

operating company primarily listed on a 

national securities exchange and 

therefore subject to the full corporate 

governance and annual meeting 

requirements of that exchange. 

Additionally, the net asset value of 

Derivative Securities that the Exchange 

proposes to exclude from its annual 

meeting requirement is determined by 

the market price of each fund’s 

underlying securities or other reference 

asset. Shareholders of such securities 

products listed on the Exchange receive 

regular disclosure documents describing 

the pricing mechanism for their 

securities and detailing how they can 

value their holdings. Accordingly, 

holders of such securities can value 

their investment on an ongoing basis. 

Because of these factors, the Exchange 

believes there is a reduced need for 

shareholders to engage with 

management of issuers of these 

securities and thus no need for the 

issuers of such securities to hold annual 

shareholder meetings absent the 

existence of other listed securities with 

director election voting rights. Further, 

although the Exchange proposes to 

exclude issuers of such securities from 

holding an annual meeting, such issuers 

may still be required to hold special 

meetings as required by state or federal 

law or their governing documents. The 

Exchange further notes that issuers of 

only non-voting preferred stock, debt 

securities and Derivative Securities are 

excluded from complying with 

substantially similar requirements on 

other national securities exchanges.124

An issuer that has non-voting 

preferred stock, debt securities and 

Derivative Securities listed on the 

Exchange that also lists the issuers 

common stock or voting preferred stock 

or their equivalent on the Exchange will 

be subject to all the requirements of 

Exchange Rule 14.10. 

(6) Definition Family Member 

The Exchange believes the proposal to 

modify the definition of Family Member 

as provided in Exchange Rule 

14.10(c)(1)(B) will remove impediments 

to and perfect the mechanism of a free 

and open market and a national market 

system, and, in general, to protect 

investors and the public interest. In 

particular, the Exchange’s rules 

currently prohibit a director from being 

deemed independent in certain 

circumstances by including director’s 

stepchildren in the definition of a 

Family Member, as described in more 

detail above. The rule also includes a 

domestic employee who shares the 

director’s home in the definition of a 

Family Member, even though the 

relationship between the director and 

such employee is commercial in nature. 

Independent directors over time 

became a linchpin in the American 

corporate governance. It is important for 

investors to have confidence that 

individuals serving as independent 

directors do not have a relationship 

with the listed company that would 

impair their independence. As the 

importance of independent directors for 

listed companies increased, so did the 

directors’ workload and the risk of 

litigation. In this environment, the 

Exchange believes that it is appropriate 

not to prohibit directors from being 

considered independent based on the 

aforementioned commercial or 

attenuated stepchild relationships, but 

instead allow the board to review such 

a relationship and determine whether a 

relationship exists that would interfere 

with the exercise of independent 

judgment in carrying out the director’s 

responsibilities. 

Additionally, the Exchange notes that 

the proposed rule change to Rule 

14.10(c)(1)(B) will not affect the 

additional independence criteria for 

audit committee members set forth in 

Rule 14.10(c)(3), which incorporate the 

independence requirements of SEC Rule 

10A–3.125

Following the proposed rule change, 

the Exchange’s definition of Family 

Member will become identical with 

Nasdaq definition of a Family Member, 

which the Commission has previously 

approved.126

(7) Quorum 

The Exchange believes that the 

proposed amendments to Exchange 

Rules 14.10(e)(1)(D)(iv) and 

14.10(f)(3)(ii) are designed to protect 

interests and the public interest because 

the proposal would eliminate a conflict 

forcing a company to choose between 

following the Exchange’s rules or the 

law in its home jurisdiction. Further, 

while the Exchange’s Quorum 

Requirement would not apply, there 

would continue to be other protections 

for shareholders provided by the 

company’s home country laws. The 

Exchange also believes the proposed 

amendments to Exchange Rules 

14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are 

designed to protect investors and the 

public interest because any company 

relying on the proposed exception from 

the Exchange’s Quorum Requirement 

will be required to make public 

disclosure on or through the Company’s 

website and either by filing a Form 8– 

K, where required by SEC rules, or by 

issuing a press release explaining the 

company’s reliance on the exception. 

The Exchange believes that the 

proposed requirement that such website 

disclosure is maintained for the period 

of time the company continues to rely 

on the exception from the quorum 

requirements is designed to protect 

investors and the public interest 

because such website disclosure would 

help assure continuous transparency. 

The Exchange also believes that the 

proposed requirement to update the 

website disclosure at least annually to 

indicate that the company continues to 

be prohibited under its home country 

law from complying with the 

Exchange’s quorum requirements as of 

the date of such update is designed to 

protect investors and the public interest 

because such disclosure would help the 

Exchange assure that the exception 

remains appropriate. 

The Exchange believes that the 

proposed amendments to correct 

grammatical errors or incorrect rule 

references will improve the readability 

and clarity of the Exchanges rulebook. 

The Exchange notes that the proposed 

changes to the Exchange’s quorum 

requirements are substantively similar 

to existing rules on Nasdaq, and thus do 

not present any new or novel issues.127


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices 12937 

Proposed Rule Change To Modify the Quorum 

Requirement for Non-U.S. Companies Under 

Certain Limited Circumstances); and 91567 (April 

14, 2021) 86 FR 20556 (April 20, 2021) (Notice of 

Filing of Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To Modify the 

Quorum Requirement). 

128 15 U.S.C. 78s(b)(3)(A)(iii). 

129 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires the Exchange to give the 

Commission written notice of its intent to file the 

proposed rule change, along with a brief description 

and text of the proposed rule change, at least five 

business days prior to the date of filing of the 

proposed rule change, or such shorter time as 

designated by the Commission. The Exchange has 

satisfied this requirement. 

130 17 CFR 240.19b–4(f)(6). 

131 17 CFR 240.19b–4(f)(6)(iii). 

132See Section II. A, supra. As described above, 

some of the proposed changes were also previously 

approved by the Commission. 

133For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 134 17 CFR 200.30–3(a)(12). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. Instead, the 

Exchange believes the proposed rule 

changes to conform certain applicable 

listing rules so that they are 

substantively similar to corresponding 

Nasdaq rules may enhance intermarket 

competition since the Exchange and 

Nasdaq will have substantially similar 

listing requirements for issuers. 

Moreover, none of the proposed 

changes will unduly burden intramarket competition. Participants will 

experience no competitive impact from 

the proposed amendments as they are 

merely intended to the Exchange’s 

corporate governance requirements so 

that they are substantively similar to 

those of other exchanges. Further, the 

Exchange anticipates that all issuers 

with Companies listed on the Exchange 

already comply with the proposed rules. 

Thus, the proposal will have no material 

impact to such issuers. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A)(iii) of the Act 128 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.129

A proposed rule change filed under 

Rule 19b–4(f)(6) 130 normally does not 

become operative prior to 30 days after 

the date of the filing. However, pursuant 

to Rule 19b–4(f)(6)(iii),131 the 

Commission may designate a shorter 

time if such action is consistent with the 

protection of investors and the public 

interest. The Exchange has asked the 

Commission to waive the 30-day 

operative delay to allow the Exchange to 

implement the proposal as soon as 

possible. The Exchange states that the 

proposal is substantively similar or 

identical to Nasdaq listing rules series 

5200 (General Procedures and 

Prerequisites for Initial and Continued 

Listing on the Nasdaq Stock Market), 

5600 (Corporate Governance 

Requirements), and 5800 (Failure to 

Meeting Listing Standards). The 

Commission believes that waiver of the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest because the proposal 

does not raise any new or novel issues. 

The proposed changes have also 

previously been subject to notice and 

comment.132 Accordingly, the 

Commission hereby waives the 30-day 

operative delay and designates the 

proposal operative upon filing.133

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2024–010 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBZX–2024–010. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBZX–2024–010 and should be 

submitted on or before March 12, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.134

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–03336 Filed 2–16–24; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice: 12329] 

Exchange Visitor Program 

ACTION: Notice of an arrangement 

through a Memorandum of 


ddrumheller on DSK120RN23PROD with NOTICES1